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Endogenous markups and fiscal policy

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  • Luis Costa

Abstract

This paper analyses a simple imperfectly competitive general equilibrium model where the entry mechanism generates an endogenous markup. In this second-best world fiscal policy is more effective than in Walrasian or in fixed-markup monopolistic competition models, as it produces efficiency gains through entry. Copyright Blackwell Publishing Ltd and The Victoria University of Manchester, 2004.

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Bibliographic Info

Paper provided by Money Macro and Finance Research Group in its series Money Macro and Finance (MMF) Research Group Conference 2003 with number 18.

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Date of creation: 27 Sep 2004
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Handle: RePEc:mmf:mmfc03:18

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Web page: http://www.essex.ac.uk/afm/mmf/index.html

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  1. Mankiw, N. Gregory, 1988. "Imperfect competition and the Keynesian cross," Economics Letters, Elsevier, vol. 26(1), pages 7-13.
  2. D'Aspremont, C. & Dos Santos Ferreira, R. & Gerard-Varet, L.A., 1992. "General Equilibrium Concepts Under Imperfect Competition: A Cournotien Approach," G.R.E.Q.A.M. 92a03, Universite Aix-Marseille III.
  3. Hassan Molana & Catia Montagna, 1998. "Market Structure, Cost Asymmetries and Fiscal Policy Effectiveness," Dundee Discussion Papers in Economics 089, Economic Studies, University of Dundee.
  4. Driskill, Robert A. & McCafferty, Stephen, 1989. "Dynamic duopoly with adjustment costs: A differential game approach," Journal of Economic Theory, Elsevier, vol. 49(2), pages 324-338, December.
  5. 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.
  6. Dixit, Avinash K & Stiglitz, Joseph E, 1975. "Monopolistic Competition and Optimum Product Diversity," The Warwick Economics Research Paper Series (TWERPS) 64, University of Warwick, Department of Economics.
  7. 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.
  8. Joaquim Oliveira Martins & Stefano Scarpetta, 1999. "The Levels and Cyclical Behaviour of Mark-ups Across Countries and Market Structures," OECD Economics Department Working Papers 213, OECD Publishing.
  9. 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.
  10. Hart, Oliver, 1982. "A Model of Imperfect Competition with Keynesian Features," The Quarterly Journal of Economics, MIT Press, vol. 97(1), pages 109-38, February.
  11. Reinhorn, Leslie J., 1998. "Imperfect competition, the Keynesian cross, and optimal fiscal policy," Economics Letters, Elsevier, vol. 58(3), pages 331-337, March.
  12. S. Baranzoni & P. Bianchi & L. Lambertini, 2000. "Market Structure," Working Papers 368, Dipartimento Scienze Economiche, Universita' di Bologna.
  13. Torregrosa, Ramon J., 1998. "On the monotonicity of balanced budget multiplier under imperfect competition," Economics Letters, Elsevier, vol. 59(3), pages 331-335, June.
  14. Dixon, Huw & Lawler, Phillip, 1996. " Imperfect Competition and the Fiscal Multiplier," Scandinavian Journal of Economics, Wiley Blackwell, vol. 98(2), pages 219-31, June.
  15. Wu, Yangru & Zhang, Junxi, 2000. "Endogenous markups and the effects of income taxation:: Theory and evidence from OECD countries," Journal of Public Economics, Elsevier, vol. 77(3), pages 383-406, September.
  16. 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.
  17. Julio J. Rotemberg & Michael Woodford, 1991. "Markups and the Business Cycle," NBER Chapters, in: NBER Macroeconomics Annual 1991, Volume 6, pages 63-140 National Bureau of Economic Research, Inc.
  18. 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.
  19. Fershtman, Chaim & Kamien, Morton I, 1987. "Dynamic Duopolistic Competition with Sticky Prices," Econometrica, Econometric Society, vol. 55(5), pages 1151-64, September.
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Citations

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Cited by:
  1. António Afonso & Luís Costa, 2010. "Market Power and Fiscal Policy in OECD Countries," Working Papers Department of Economics 2010/11, ISEG - School of Economics and Management, Department of Economics, University of Lisbon.
  2. Costa, Luís F. & Dixon, Huw David, 2007. "A Simple Business-Cycle Model with Shumpeterian Features," Cardiff Economics Working Papers E2007/28, Cardiff University, Cardiff Business School, Economics Section.
  3. Luís F. Costa & Nuno Palma, 2006. "Productive Public Expenditure and Imperfect Competition with Endogenous Price Markup: Comment," Working Papers Department of Economics 2006/24, ISEG - School of Economics and Management, Department of Economics, University of Lisbon.
  4. Brito, Paulo B. & Costa, Luís F. & Dixon, Huw, 2013. "Non-smooth dynamics and multiple equilibria in a Cournot–Ramsey model with endogenous markups," Journal of Economic Dynamics and Control, Elsevier, vol. 37(11), pages 2287-2306.
  5. Luís Costa, 2006. "Entry and fiscal policy effectiveness in a small open economy within a Monetary Union," Portuguese Economic Journal, Springer, vol. 5(1), pages 45-65, May.
  6. Luís F. Costa & Huw Dixon, 2009. "Fiscal Policy under Imperfect Competition: A Survey," Working Papers Department of Economics 2009/25, ISEG - School of Economics and Management, Department of Economics, University of Lisbon.
  7. Costa, Luís F. & Dixon, Huw David, 2011. "Fiscal policy under imperfect competition with flexible prices: An overview and survey," Economics - The Open-Access, Open-Assessment E-Journal, Kiel Institute for the World Economy, vol. 5(3), pages 1-57.
  8. Luís Costa, 2007. "GDP steady-state multipliers under monopolistic competition revisited," Portuguese Economic Journal, Springer, vol. 6(3), pages 181-204, December.

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