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Should Fiscal Policy Be Di.erent in a Non-Competitive Framework?

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Author Info
Arantza Gorostiaga () (Universidad del País Vasco)

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Abstract

This paper studies if imperfections in the labor market justify a diferent fiscal policy. We present a dynamic general equilibrium model with a Ramsey planner deciding about public spending, labor taxes and debt. Two diferent labor market setups are considered. First we assume a competitive labor market and then we introduce a union with monopoly power. Both models reach the same conclusion as regards the cyclical properties of the optimal policy: it is not optimal to implement a countercyclical fiscal policy. We also find that government spending should be larger under perfect competition. These main results arise both under complete and incomplete markets for the debt.

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Paper provided by Centro de Estudios Andaluces in its series Economic Working Papers at Centro de Estudios Andaluces with number E2002/11.

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Length: 35 pages
Date of creation: 2002
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Handle: RePEc:cea:doctra:e2002_11

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Related research
Keywords: Ramsey problem labor market imperfections incomplete markets

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Find related papers by JEL classification:
C6 - Mathematical and Quantitative Methods - - Mathematical Methods and Programming
E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation

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References listed on IDEAS
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  2. Huw David Dixon, 2000. "Modelling Market Power in Labour and Product Markets in a Dynamic Economy," Ekonomia, Cyprus Economic Society and University of Cyprus, vol. 4(2), pages 104-121, Winter.
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Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Steve Cassou & Arantza Gorostiaga & María José Gutiérrez & Stephen Hamilton, 2006. "Second-best tax policy in a growing economy with externalities," DFAEII Working Papers 200603, University of the Basque Country - Department of Foundations of Economic Analysis II. [Downloadable!]
  2. Jinill Kim & Sunghyun Henry Kim, 2003. "Welfare effects of tax policy in open economies: stabilization and cooperation," Finance and Economics Discussion Series 2003-51, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
    Other versions:
  3. Arantza Gorostiaga, 2003. "Optimal Fiscal Policy with Rationing in the Labor Market," DFAEII Working Papers 200229, University of the Basque Country - Department of Foundations of Economic Analysis II. [Downloadable!]
    Other versions:
  4. Steven P. Cassou & Arantza Gorostiaga, 2007. "Optimal fiscal policy in a multisector model with minimum expenditure requirements," DFAEII Working Papers 200701, University of the Basque Country - Department of Foundations of Economic Analysis II. [Downloadable!]
  5. Arantza Gorostiage & Juan F. Rubio-Ramírez, 2004. "Optimal Minimum Wage in a Competitive Economy," DFAEII Working Papers 200407, University of the Basque Country - Department of Foundations of Economic Analysis II. [Downloadable!]
    Other versions:
  6. Albert Marcet & Andrew Scott, 2001. "Debt and Deficit Fluctuations and the Structure of Bond Markets," Economics Working Papers 558, Department of Economics and Business, Universitat Pompeu Fabra, revised Jul 2003. [Downloadable!]
    Other versions:
  7. Antonio Morales & Pablo Brañas Garza, 2003. "Computational Errors in Guessing Games1," Economic Working Papers at Centro de Estudios Andaluces E2003/11, Centro de Estudios Andaluces. [Downloadable!]
  8. Albert Marcet & Andrew Scott, 2007. "Debt and Deficit Fluctuations and the Structure of Bond Markets," UFAE and IAE Working Papers 728.08, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC). [Downloadable!]
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