Robert R. Dogonowski () (Department of Economics, University of Aarhus, Denmark)
Abstract
In this paper we study the role of fiscal policy in a macroeconomic model with imperfect competition in the product market. We find that fiscal spending per se and a less competitive industry reduce the responsiveness of income to productivity shocks. The government should follow a counter-cyclical fiscal policy if it wants to stabilize income (against productivity shocks), but this policy is not in the interest of the households which prefer pro-cyclical fiscal spending. We also analyse the cost of following a nonconditional fiscal policy rule, and find that it is more costly to do so, when the degree of competition in the product market is low.
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Publisher Info
Paper provided by School of Economics and Management, University of Aarhus in its series Economics Working Papers with number
1998-10.
Find related papers by JEL classification: E39 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Other E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination E63 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization