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Useful government spending, direct crowding-out and fiscal policy interdependence

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  • Ganelli, Giovanni

Abstract

This paper introduces perfect substitutability between private and public consumption in a dynamic, open economy with imperfect competition and nominal rigidities. This implies a direct crowding-out effect that, generalizing to the two-country case some well-known properties of a closed economy, tends to reduce consumption following both domestic and foreign expansions. A less expected result is that sub-stitutability has a positive effect on the short-run output spillover.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of International Money and Finance.

Volume (Year): 22 (2003)
Issue (Month): 1 (February)
Pages: 87-103

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Handle: RePEc:eee:jimfin:v:22:y:2003:i:1:p:87-103

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Web page: http://www.elsevier.com/locate/inca/30443

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