Mainstream classical macroeconomics challenges Keynes' claim to have demonstrated the possibility of equilibrium involuntary unemployment in a perfectly competitive economy with flexible prices and nominal wages. This challenge is predicated on the Pigou (1943) effect, according to which decreases in the ...
Pigou’s claim that “there will be certain rates of tax [that] would increase […] economic welfare; and one rate of tax, which would have the optimum effect in this respect” also holds in