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Fixed Costs, The Balanced-Budget Multiplier And Welfare

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Author Info
Partha Sen (Department of Economics, Delhi School of Economics, Delhi, India)

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Abstract

In a two-sector model, where one of the sectors is monopolistically competitive and subject to increasing returns to scale but without love for variety, we analyze the effects of a balanced budget fiscal expansion. Such an expansion could increase the welfare of the representative individual, if elasticities of substitution in production and consumption are low. A reorganization of production takes place--increasing returns enabling a rise in real income.

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Publisher Info
Paper provided by Centre for Development Economics, Delhi School of Economics in its series Working papers with number 171.

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Length: 14 pages
Date of creation: Sep 2008
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Handle: RePEc:cde:cdewps:171

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Related research
Keywords: New-Keynesian Models; Monopolistic Competition;

Find related papers by JEL classification:
E1 - Macroeconomics and Monetary Economics - - General Aggregative Models
E2 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment
L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance

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    Other versions:
  2. 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)
  3. 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)
  4. Benassy, Jean-Pascal, 1996. "Taste for variety and optimum production patterns in monopolistic competition," Economics Letters, Elsevier, vol. 52(1), pages 41-47, July. [Downloadable!] (restricted)
  5. Gali Jordi, 1994. "Monopolistic Competition, Business Cycles, and the Composition of Aggregate Demand," Journal of Economic Theory, Elsevier, vol. 63(1), pages 73-96, June. [Downloadable!] (restricted)
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  6. Devereux, Michael B & Head, Allen C & Lapham, Beverly J, 1996. "Monopolistic Competition, Increasing Returns, and the Effects of Government Spending," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 28(2), pages 233-54, May. [Downloadable!] (restricted)
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  7. Weil, Philippe, 1989. "Increasing Returns and Animal Spirits," American Economic Review, American Economic Association, vol. 79(4), pages 889-94, September. [Downloadable!] (restricted)
  8. Sen, Partha, 2002. "Welfare-improving debt policy under monopolistic competition," Journal of Economic Dynamics and Control, Elsevier, vol. 27(1), pages 143-156, November. [Downloadable!] (restricted)
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  9. Suzumura, Kotaro & Kiyono, Kazuharu, 1987. "Entry Barriers and Economic Welfare," Review of Economic Studies, Blackwell Publishing, vol. 54(1), pages 157-67, January. [Downloadable!] (restricted)
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  13. 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)
  14. 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)
  15. Kiyotaki, Nobuhiro, 1988. "Multiple Expectational Equilibria under Monopolistic Competition," The Quarterly Journal of Economics, MIT Press, vol. 103(4), pages 695-713, November. [Downloadable!] (restricted)
  16. Cooper, Russell & John, Andrew, 1988. "Coordinating Coordination Failures in Keynesian Models," The Quarterly Journal of Economics, MIT Press, vol. 103(3), pages 441-63, August. [Downloadable!] (restricted)
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  18. Fatas, Antonio, 1997. "Multipliers: imperfect competition or increasing returns to scale?," Economics Letters, Elsevier, vol. 57(2), pages 197-201, December. [Downloadable!] (restricted)
  19. Thomas, Charles P, 1995. "The Role of Fiscal Policy in an Incomplete Markets Framework," Review of Economic Studies, Blackwell Publishing, vol. 62(3), pages 449-68, July. [Downloadable!] (restricted)
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