The persistence of government expenditure shocks and the effect of monopolistic competition on the fiscal multiplier
AbstractIn this paper, we demonstrate that the influence of monopolistic competition in the product market on an economy's impact response to fiscal shocks depends on the persistence of these shocks. While short-lived increases in lump-sum financed government expenditure have a stronger effect on labor supply if prices are above marginal costs, the response of employment decreases in the markup if shocks are highly persistent. However, we also show that, while the impact response of labor supply to temporary government expenditure shocks may be reduced by monopolistic competition, the fiscal multiplier is always higher if firms have market power. Copyright 2002, Oxford University Press.
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Bibliographic InfoArticle provided by Oxford University Press in its journal Oxford Economic Papers.
Volume (Year): 54 (2002)
Issue (Month): 1 (January)
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- Costa, Luís F. & Dixon, Huw David, 2010.
"Fiscal policy under imperfect competition: A survey,"
Economics Discussion Papers
2010-14, Kiel Institute for the World Economy.
- Luís F. Costa & Huw Dixon, 2009. "Fiscal Policy under Imperfect Competition: A Survey," Working Papers Department of Economics 2009/25, ISEG - School of Economics and Management, Department of Economics, University of Lisbon.
- Javier Andrés & José Emilio Boscá & Javier Ferri, 2011.
"Household Leverage and Fiscal Multipliers,"
1103, International Economics Institute, University of Valencia.
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