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Demand Elasticity and Fiscal Policy

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  • Alessandra Chirco
  • Caterina Colombo

Abstract

In this paper we study the transmission mechanism of fiscal policy based on possible changes in the elasticity of demand. These are obtained by assuming that firms face a balance of public and private demands, each characterized by different price elasticity. We show that in this set-up there exists a range of the technological conditions under which fiscal policy is expansionary, independently of the pro- or counter- cyclical nature of its impact on the desired mark-up.

Suggested Citation

  • Alessandra Chirco & Caterina Colombo, 2002. "Demand Elasticity and Fiscal Policy," Rivista italiana degli economisti, Società editrice il Mulino, issue 1, pages 49-72.
  • Handle: RePEc:mul:jqat1f:doi:10.1427/7990:y:2002:i:1:p:49-72
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