This paper bulds a closed-economy NK-DSGE model with no capital, in which consumers value both private and public consumption and fiscal policy is determined by a feedback rule responding to output gap. We analyse how different degrees of substitutatibility/complementarity between private and public consumption and a pro/counter-cyclical stance of fiscal policy affect equilbrium determinacy and the response of the economy to a wide range of shocks. Results show that determinacy is ensured by counter-cyclical fiscal policy under complementarity; increasing substitutability also pro-cyclical stance becomes stable. Differences can be observed also in response to shocks.
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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number
9493.
Find related papers by JEL classification: E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy H40 - Public Economics - - Publicly Provided Goods - - - General E63 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization
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