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Markups and fiscal transmission in a panel of OECD countries

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  • Juessen, Falko
  • Linnemann, Ludger

Abstract

This paper studies the role of the markup of price over marginal cost for the transmission of fiscal policy shocks. We construct time series of markups allowing for fluctuations in capacity utilization and total factor productivity and use an aggregate production function that is more general than Cobb–Douglas. Including the constructed markup series in a bias-corrected panel vector autoregression with annual OECD data, we find that a positive shock to government spending tends to lower markups while raising output. The positive output response appears to result less from increases in hours worked than from the positive reaction of capital utilization.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Macroeconomics.

Volume (Year): 34 (2012)
Issue (Month): 3 ()
Pages: 674-686

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Handle: RePEc:eee:jmacro:v:34:y:2012:i:3:p:674-686

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Web page: http://www.elsevier.com/locate/inca/622617

Related research

Keywords: Fiscal policy; Government spending; Markups; Panel VAR;

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Cited by:
  1. Cécile Couharde & Rémi Generoso, 2014. "The ambiguous role of remittances in West African countries facing climate variability," EconomiX Working Papers 2014-37, University of Paris West - Nanterre la Défense, EconomiX.

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