Economies in transition are faced with a high degree of ´structural uncertainty´, i.e., uncertainty about which it is possible to learn through experience. We study structural uncertainty´s effects on a subsidy removal program. Subsidy removal causes unemployment, but yields fiscal benefits and facilitates private sector growth. When the policymaker does not know the speed with which the private sector absorbs the unemployed, he will be driven toward a more decisive, and therefore more informative, policy. The model also rationalizes policy reversals and implies that irreversibility constraints and political instability dampen the learning effect making policy more gradualist.

Structural uncertainty and subsidy removal for economies in transition / Bertocchi, Graziella; M., Spagat. - In: EUROPEAN ECONOMIC REVIEW. - ISSN 0014-2921. - STAMPA. - 41:(1997), pp. 1709-1733.

Structural uncertainty and subsidy removal for economies in transition

BERTOCCHI, Graziella;
1997

Abstract

Economies in transition are faced with a high degree of ´structural uncertainty´, i.e., uncertainty about which it is possible to learn through experience. We study structural uncertainty´s effects on a subsidy removal program. Subsidy removal causes unemployment, but yields fiscal benefits and facilitates private sector growth. When the policymaker does not know the speed with which the private sector absorbs the unemployed, he will be driven toward a more decisive, and therefore more informative, policy. The model also rationalizes policy reversals and implies that irreversibility constraints and political instability dampen the learning effect making policy more gradualist.
1997
41
1709
1733
Structural uncertainty and subsidy removal for economies in transition / Bertocchi, Graziella; M., Spagat. - In: EUROPEAN ECONOMIC REVIEW. - ISSN 0014-2921. - STAMPA. - 41:(1997), pp. 1709-1733.
Bertocchi, Graziella; M., Spagat
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Utilizza questo identificativo per citare o creare un link a questo documento: https://hdl.handle.net/11380/8706
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