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Fixed Costs, The Balanced-Budget Multiplier And Welfare

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  • Partha Sen

    (Department of Economics, Delhi School of Economics, Delhi, India)

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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Bibliographic 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
Date of revision:
Handle: RePEc:cde:cdewps:171

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Keywords: New-Keynesian Models; Monopolistic Competition;

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  17. Hornstein, Andreas, 1993. "Monopolistic competition, increasing returns to scale, and the importance of productivity shocks," Journal of Monetary Economics, Elsevier, vol. 31(3), pages 299-316, June.
  18. N. Gregory Mankiw & Michael D. Whinston, 1986. "Free Entry and Social Inefficiency," RAND Journal of Economics, The RAND Corporation, vol. 17(1), pages 48-58, Spring.
  19. Devereux, Michael B & Head, Allen C & Lapham, Beverly J, 2000. " Government Spending and Welfare with Returns to Specialization," Scandinavian Journal of Economics, Wiley Blackwell, vol. 102(4), pages 547-61, December.
  20. N. Gregory Mankiw, 1989. "Imperfect Competition and the Keynesian Cross," NBER Working Papers 2386, National Bureau of Economic Research, Inc.
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  22. Fatas, Antonio, 1997. "Multipliers: imperfect competition or increasing returns to scale?," Economics Letters, Elsevier, vol. 57(2), pages 197-201, December.
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