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Fiscal Policy and Entrepreneurship

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  • Katsuya Takii

Abstract

This paper reexamines the effect of expansionary fiscal policy on the real GDP in the presense of entrepreneurship - firms' activities to predict and react to changes in consumers' taste. The existence of partial crowding out in this paper generates a trade off between private consumption and government expenditure. Since goverment expenditure can not reflect changes in consumers' taste, it reduces the importance of firms' ability to process local information for predicting changes in consumers' taste. It is shown that expansionary fiscal policy can lower the real GDP when idiosyncratic risk and the substitutability of goods are large, and firms have great ability to predict the changes. This paper also shows that expansionary fiscal policy discourgages investment in prediction ability in the short run, but has no effect in the long run.

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Bibliographic Info

Paper provided by Econometric Society in its series Econometric Society 2004 North American Summer Meetings with number 320.

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Date of creation: 11 Aug 2004
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Handle: RePEc:ecm:nasm04:320

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Keywords: Fiscal Policy; Entrepreneurship; Local Information;

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References

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  1. Aghion, Philippe & Howitt, Peter, 1992. "A Model of Growth Through Creative Destruction," Scholarly Articles 12490578, Harvard University Department of Economics.
  2. Startz, Richard, 1989. "Monopolistic Competition as a Foundation for Keynesian Macroeconomic Models," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 104(4), pages 737-52, November.
  3. Rosen Sherwin, 1997. "Austrian and Neoclassical Economics: Any Gains From Trade?," University of Chicago - George G. Stigler Center for Study of Economy and State, Chicago - Center for Study of Economy and State 133, Chicago - Center for Study of Economy and State.
  4. Silvestre, J., 1991. "The Market-Power Foundations of Macroeconomic Policy," Papers, California Davis - Institute of Governmental Affairs 374, California Davis - Institute of Governmental Affairs.
  5. Aghion, P. & Howitt, P., 1990. "A Model Of Growth Through Creative Destruction," DELTA Working Papers, DELTA (Ecole normale supérieure) 90-12, DELTA (Ecole normale supérieure).
  6. Katsuya Takii, 2004. "The Value of Adaptability," Industrial Organization, EconWPA 0406004, EconWPA.
  7. Benassy, Jean-Pascal, 2001. "On the optimality of activist policies with a less informed government," Journal of Monetary Economics, Elsevier, Elsevier, vol. 47(1), pages 45-59, February.
  8. Katsuya Takii, 2004. "Entrepreneurial Efficiency: Theory," Macroeconomics, EconWPA 0411005, EconWPA.
  9. Alan Auerbach, 2002. "Is There a Role for Discretionary Fiscal Policy?," NBER Working Papers 9306, National Bureau of Economic Research, Inc.
  10. Holmes, T.J. & Schmitz, J.A., 1988. "A Theory Of Enterpreneurship And Its Application To The Study Of Business Transfers," Working papers, Wisconsin Madison - Social Systems 8827, Wisconsin Madison - Social Systems.
  11. Katsuya Takii, 2000. "Prediction Ability," Econometric Society World Congress 2000 Contributed Papers, Econometric Society 1411, Econometric Society.
  12. V. V. Chari & Patrick J. Kehoe, 1999. "Optimal Fiscal and Monetary Policy," NBER Working Papers 6891, National Bureau of Economic Research, Inc.
  13. Katsuya Takii, 2004. "Entrepreneurial Efficiency," Macroeconomics, EconWPA 0406007, EconWPA.
  14. Davis, Steven J. & Haltiwanger, John, 1999. "Gross job flows," Handbook of Labor Economics, Elsevier, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 41, pages 2711-2805 Elsevier.
  15. Thomas N. Hubbard, 2003. "Information, Decisions, and Productivity: On-Board Computers and Capacity Utilization in Trucking," American Economic Review, American Economic Association, American Economic Association, vol. 93(4), pages 1328-1353, September.
  16. Schmitz, James A, Jr, 1989. "Imitation, Entrepreneurship, and Long-run Growth," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 97(3), pages 721-39, June.
  17. Israel M. Kirzner, 1997. "Entrepreneurial Discovery and the Competitive Market Process: An Austrian Approach," Journal of Economic Literature, American Economic Association, vol. 35(1), pages 60-85, March.
  18. Kihlstrom, Richard E & Laffont, Jean-Jacques, 1979. "A General Equilibrium Entrepreneurial Theory of Firm Formation Based on Risk Aversion," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 87(4), pages 719-48, August.
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Cited by:
  1. Katsuya Takii, 2007. "The Persistence of Differences in Productivity, Wages, Skill Mixes and Profits Between Firms," Discussion Papers in Economics and Business 07-10, Osaka University, Graduate School of Economics and Osaka School of International Public Policy (OSIPP).
  2. Katsuya Takii, 2009. "Entrepreneurial competition and its impact on the aggregate economy," Journal of Economics, Springer, Springer, vol. 97(1), pages 1-18, May.
  3. Sasaki, Masaru & Takii, Katsuya & Wan, Junmin, 2012. "Horizontal Transfer and Promotion: New Evidence and an Interpretation from the Perspective of Task-Specific Human Capital," IZA Discussion Papers 6486, Institute for the Study of Labor (IZA).

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