Re: What if and Why of Zero Taxation

["Kazuhiro Kurose" <kurose@xxxxxxxxxxxxxxxxxxxxxx>]

Sven
> I agree that investment should be high, but this has nothing to do with
> interest rates. There is no scientific study anywhere - and I've looked for a
> while now - that proves ANY kind of correlation between investments and
> interest rates. The I=I(r) is one of the most persistent macroeconomic myths in
> our world. The correct one is of course I=I(AD), with appropriate periodicity
> in denotations.

I know some empirical studies which show that interest rate elasticity of investment is lower than Keynes predicted.
Therefore, it may be myth that investment is supposed to be the function of interest rate. But I have a question on your
opinion. According to my understanding, what you mean is as follows
Investment should be assumed as the function of aggregate demand,Y, instead of interest rate,r.That is to say,
I=I(Y).                (1)
And if the consumption is traditionally assumed as the function of income, the consumption function follows that
C=C(Y).            (2)
Therefore, the effective demand is
Y=C(Y)+I(Y).            (3)

If this understanding is correct, what is the obstacle which prevents the economy from achieving full employment?
In equation (3), all of component of income are the function of income. In this case, I think that there are no
obstacles to achieve full employment.
Keynes explained the principle of effective demand by embracing the distinction of the effective demand between D1 and
D2. He can successfully explain the principle because D2 is NOT the function of income. If my understanding is correct,
your explanation is the very Say's law.

I think, as some lists argued, that investment may be the variable which should be exogenous by assuming the function of
expectation or mood. That is to say,
I=I(E).            (4)
E stands for the expectation or mood, which can't be fully endogenously explained.

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  Kazuhiro Kurose
  Graduate School of Economics and Business
  Administration, Hokkaido University
  Kita 9 Nishi 7, Kita-Ku, Sapporo, Japan
  060-0809
    TEL: +81-11-716-2111 ex:2786
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