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The stabilization role of police spending in a neo‐Keynesian economy with credit market imperfections
Author(s) -
Jia Pengfei,
Lim King Yoong
Publication year - 2021
Publication title -
scottish journal of political economy
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.4
H-Index - 46
eISSN - 1467-9485
pISSN - 0036-9292
DOI - 10.1111/sjpe.12258
Subject(s) - stylized fact , economics , latin americans , phenomenon , bond market , new keynesian economics , capital (architecture) , bailout , macroeconomics , monetary economics , financial crisis , monetary policy , law , political science , physics , quantum mechanics , history , archaeology
Motivated by a seemingly persistent “twin‐high” phenomenon in Latin America, we present a novel theoretical framework that has linkages between three institutions (education, criminal justice, and credit) to study policy‐pertinent research questions with regards to whether police spending has the potential to serve as an unconventional policy tool for macroeconomic management. Based on a stylized parameterization, we find formal and illegal human capital to share common cyclical properties, which can be "decoupled" under a rule‐based regime to police spending. This nonetheless comes at a cost of a greater propagation of the credit friction‐induced financial accelerator effect.