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Stabilizing fiscal policies with capital market imperfections

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Author Info
Nicolas L. Dromel () (Centre d'Economie de la Sorbonne - Paris School of Economics)
Abstract

We analyze how investment subsidies can affect aggregate volatility and growth in economies subject to capital market imperfections. Within a model featuring both frictions on the credit market and unequal access to investment opportunities among individuals, we provide specific fiscal parameters able to reduce the probability of recessions, fuel the economy long-run growth rate and place it on a permanent-boom dynamic path. We analyze how conditions on the stabilizing fiscal parameters are modified when frictions in the economy evolve. Eventually, we show how this tax and transfer system can moderate persistence in the economy's response to temporary and permanent productivity shocks.

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File URL: ftp://mse.univ-paris1.fr/pub/mse/CES2009/09030.pdf
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Publisher Info
Paper provided by Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne in its series Documents de travail du Centre d'Economie de la Sorbonne with number 09030.

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Length: 33 pages
Date of creation: May 2009
Date of revision:
Handle: RePEc:mse:cesdoc:09030

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Web page: http://ces.univ-paris1.fr/
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Related research
Keywords: Endogenous business cycles; capital market imperfections; access to productive investment; fiscal policy; macroeconomic stabilization.;

Find related papers by JEL classification:
E22 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Capital; Investment; Capacity
E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General
H30 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - General

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This page was last updated on 2009-11-23.

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