Relaxing the international constraints on full employment

Abstract

A large number of economists seem to have come round in recent years to the view that Keynesian demand management policies do not work under current conditions. There are those who believe that the reasons are basically domestic or internal to the economy, and others who believe that the reasons are international or external to the economy, caused by its ‘openness’. The present paper seeks to analyse the exact nature of this external constraint in a regime of flexible exchange rates with high mobility of financial capital and then to suggest a simple tax measure which largely seems to satisfy this constraint. The authors argue that such a measure would also relax considerably the internal constraint in terms of the burden of servicing public debt. JEL: E24, F31, F41

Keywords

• Exchange rates
• Employment