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Market power and fiscal policy in OECD countries

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  • Afonso, António
  • Costa, Luís F.

Abstract

We compute average mark-ups as a measure of market power throughout time and study their interaction with fiscal policy and macroeconomic variables in a VAR framework. From impulse-response functions the results, with annual data for a set of 14 OECD countries covering the period 1970-2007, show that the mark-up (i) depicts a pro-cyclical behaviour with productivity shocks and (ii) a mildly counter-cyclical behaviour with fiscal spending shocks. We also use a Panel Vector Auto-Regression analysis, increasing the efficiency in the estimations, which confirms the countryspecific results. JEL Classification: D4, E0, E3, H6

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Paper provided by European Central Bank in its series Working Paper Series with number 1173.

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Date of creation: Apr 2010
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Handle: RePEc:ecb:ecbwps:20101173

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Keywords: Fiscal Policy; Mark-up; Panel VAR; VAR;

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Cited by:
  1. Costa, Luís F. & Dixon, Huw David, 2010. "Fiscal policy under imperfect competition: A survey," Economics Discussion Papers 2010-14, Kiel Institute for the World Economy.
  2. Peter Claeys & Luis Costa, 2012. "“A Note on the Relationship Between the Cyclicality of Markups and Fiscal Policy”," AQR Working Papers 201208, University of Barcelona, Regional Quantitative Analysis Group, revised Sep 2012.
  3. Ali Abcha, 2014. "Imperfect competition, government spending and estimated markup," EconomiX Working Papers 2014-11, University of Paris West - Nanterre la Défense, EconomiX.
  4. Juessen, Falko & Linnemann, Ludger, 2012. "Markups and fiscal transmission in a panel of OECD countries," Journal of Macroeconomics, Elsevier, vol. 34(3), pages 674-686.

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