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Imperfect Competition and Fiscal Policy Transmission in a Two-Country Economy

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Author Info
Emmanuelle Taugourdeau ()

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Abstract

This paper explores the interactions between countries implementing a fiscal policy in a monopolistic competition framework. The study of the fiscal multipliers shows that a fiscal expansion in the home country increases domestic output and diminishes foreign output in the short run. Profit redistribution to households constitutes the main channel of transmission. Both influence of the proportion of domestic firms owned by domestic households and the effect of the mark-up on the transmission of government policies are analysed. In the long run there is no interaction between countries since profits are zero. The welfare analysis reveals the possibility of positive externalities across countries, and the introduction of alternative taxation principles shows that the main results can be altered by the taxation scheme. Copyright Kluwer Academic Publishers 2002

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File URL: http://hdl.handle.net/10.1023/A:1012263829324
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Publisher Info
Article provided by Springer in its journal Open Economies Review.

Volume (Year): 13 (2002)
Issue (Month): 1 (January)
Pages: 47-71
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Handle: RePEc:kap:openec:v:13:y:2002:i:1:p:47-71

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Web page: http://www.springerlink.com/link.asp?id=100323

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Related research
Keywords: international transmission; fiscal multiplier; monopolistic competition;

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References listed on IDEAS
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  1. Dixon, Huw, 1987. "A Simple Model of Imperfect Competition with Walrasian Features," Oxford Economic Papers, Oxford University Press, vol. 39(1), pages 134-60, March. [Downloadable!] (restricted)
  2. Blanchard, Olivier Jean & Kiyotaki, Nobuhiro, 1987. "Monopolistic Competition and the Effects of Aggregate Demand," American Economic Review, American Economic Association, vol. 77(4), pages 647-66, September. [Downloadable!] (restricted)
  3. Turnovsky, Stephen J., 1988. "The gains from fiscal cooperation in the two-commodity real trade model," Journal of International Economics, Elsevier, vol. 25(1-2), pages 111-127, August. [Downloadable!] (restricted)
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  4. Huizinga, Harry & Nielsen, Soren Bo, 1997. "Capital income and profit taxation with foreign ownership of firms," Journal of International Economics, Elsevier, vol. 42(1-2), pages 149-165, February. [Downloadable!] (restricted)
    Other versions:
  5. Bondonio, Daniele, 2002. "Evaluating the Employment Impact of Business Incentive Programs in EU Disadvantaged Areas. A case from Northern Italy," P.O.L.I.S. department's Working Papers 27, Department of Public Policy and Public Choice - POLIS. [Downloadable!]
  6. Hairault, Jean-Olivier & Portier, Franck, 1993. "Money, New-Keynesian macroeconomics and the business cycle," European Economic Review, Elsevier, vol. 37(8), pages 1533-1568, December. [Downloadable!] (restricted)
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  7. Hassan Molana & Thomas Moutos, 1991. "A Note on Taxation, Imperfect Competition and the Balanced Budget Multiplier," Working Papers Series 91/4, University of Stirling, Department of Economics.
    Other versions:
  8. Dixon, Huw David & Santoni, Michele, 1997. "Fiscal Policy Coordination with Demand Spillovers and Unionised Labour Markets," Economic Journal, Royal Economic Society, vol. 107(441), pages 403-17, March. [Downloadable!] (restricted)
  9. Devereux, Michael B, 1991. "The Terms of Trade and the International Coordination of Fiscal Policy," Economic Inquiry, Oxford University Press, vol. 29(4), pages 720-36, October.
  10. Startz, Richard, 1989. "Monopolistic Competition as a Foundation for Keynesian Macroeconomic Models," The Quarterly Journal of Economics, MIT Press, vol. 104(4), pages 737-52, November. [Downloadable!] (restricted)
  11. Stephen J. Turnovsky, 1997. "International Macroeconomic Dynamics," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262201119, December.
  12. Heijdra, Ben J & van der Ploeg, Frederick, 1996. "Keynesian Multipliers and the Cost of Public Funds under Monopolistic Competition," Economic Journal, Royal Economic Society, vol. 106(438), pages 1284-96, September. [Downloadable!] (restricted)
  13. Dixon, Huw & Lawler, Phillip, 1996. " Imperfect Competition and the Fiscal Multiplier," Scandinavian Journal of Economics, Blackwell Publishing, vol. 98(2), pages 219-31, June.
  14. Heijdra, Ben J, 1998. "Fiscal Policy Multipliers: The Role of Monopolistic Competition, Scale Economies, and Intertemporal Substitution in Labour Supply," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 39(3), pages 659-96, August.
  15. Mankiw, N. Gregory, 1988. "Imperfect competition and the Keynesian cross," Economics Letters, Elsevier, vol. 26(1), pages 7-13. [Downloadable!] (restricted)
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  16. Heijdra, Ben J & Ligthart, Jenny E & van der Ploeg, Frederick, 1998. "Fiscal Policy, Distortionary Taxation, and Direct Crowding Out under Monopolistic Competition," Oxford Economic Papers, Oxford University Press, vol. 50(1), pages 79-88, January.
  17. Argy, Victor & Salop, Joanne, 1983. "Price and Output Effects of Monetary and Fiscal Expansion in a Two-Country World under Flexible Exchange Rates," Oxford Economic Papers, Oxford University Press, vol. 35(2), pages 228-46, July. [Downloadable!] (restricted)
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