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Fiscal Stimulus and Endogenous Firm Entry in a Monopolistic Competition Macroeconomic Model

Author

Listed:
  • Cheng-Wei Chang

    (Academia Sinica
    Fu-Jen Catholic University)

  • Ching-Chong Lai

    (Academia Sinica
    National Chengchi University
    National Sun Yat-Sen University
    Feng Chia University)

  • Juin-Jen Chang

    (Academia Sinica
    Fu-Jen Catholic University)

Abstract

This paper sets up a monopolistic competition model featuring the returns to production specialization. Some novel results are derived from the analysis. First, the effect of a fiscal stimulus on consumption may be positive or negative, depending crucially upon whether the production function is characterized by increasing or decreasing returns to production specialization. Second, following a fiscal expansion, increasing returns to specialization lead to a positive linkage between real wages and aggregate output, while decreasing returns to specialization result in a negative relationship between real wages and aggregate output. Third, a fiscal expansion may raise social welfare, provided that the degree of increasing returns to production specialization is sufficiently large.

Suggested Citation

  • Cheng-Wei Chang & Ching-Chong Lai & Juin-Jen Chang, 2018. "Fiscal Stimulus and Endogenous Firm Entry in a Monopolistic Competition Macroeconomic Model," The Japanese Economic Review, Springer, vol. 69(2), pages 207-225, June.
    • Handle: RePEc:spr:jecrev:v:69:y:2018:i:2:d:10.1111_jere.12155
    DOI: 10.1111/jere.12155
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    Cited by:

    1. Cheng-wei Chang & Ching-chong Lai, 2021. "Optimal fiscal policies and market structures with monopolistic competition," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 28(6), pages 1385-1411, December.
    2. Cheng-wei Chang & Ching-chong Lai & Ting-wei Lai, 2020. "Fiscal stimulus in a simple macroeconomic model of monopolistic competition with firm heterogeneity," The Japanese Economic Review, Springer, vol. 71(3), pages 447-477, July.
    3. Cheng‐wei Chang, 2020. "Endogenous overhead costs, firm size, and fiscal shocks," Scottish Journal of Political Economy, Scottish Economic Society, vol. 67(2), pages 223-230, May.

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    More about this item

    Keywords

    E21; E62; L23;
    All these keywords.

    JEL classification:

    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • L23 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Organization of Production

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