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Public Spending Management and Macroeconomic Interdependence

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  • Giovanni Ganelli

Abstract

This paper studies the international macroeconomic effects of microeconomic measures, aimed at improving the efficiency of public spending management by increasing the price-elasticity of public consumption. In order to do this, we develop a New Open Economy Macroeconomics (NOEM) model in which the elastiity of substitution between differentiated goods in public consumption is different from the one in private consumption and the optimal mark-up is endogenous. This allows us to disentangle the international effects of structural reforms that improve the efficiency of spending in the public sector. We find that such policies can significantly affect the macroeconomic interdependence pattern that follows asymmetric fiscal shoocks. In welfare terms, we find that the countries with a larger government sector have an incentive to promote global "public competition policies".

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Bibliographic Info

Paper provided by Trinity College Dublin, Department of Economics in its series Trinity Economics Papers with number 20039.

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Date of creation: 2003
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Handle: RePEc:tcd:tcduee:20039

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Postal: Trinity College, Dublin 2
Phone: (+ 353 1) 6081325
Fax: 6772503
Web page: http://www.tcd.ie/Economics/
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  1. Blanchard, Olivier Jean & Kiyotaki, Nobuhiro, 1987. "Monopolistic Competition and the Effects of Aggregate Demand," American Economic Review, American Economic Association, vol. 77(4), pages 647-66, September.
  2. 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.
  3. Obstfeld, Maurice & Rogoff, Kenneth, 1995. "Exchange Rate Dynamics Redux," Journal of Political Economy, University of Chicago Press, vol. 103(3), pages 624-60, June.
  4. Giovanni Lombardo & Alan Sutherland, 2003. "Monetary and fiscal interactions in open economies," Working Paper Series 289, European Central Bank.
  5. Beetsma, Roel M. W. J. & Jensen, Henrik, 2004. "Mark-up fluctuations and fiscal policy stabilization in a monetary union," Journal of Macroeconomics, Elsevier, vol. 26(2), pages 357-376, June.
  6. Julio J. Rotemberg & Michael Woodford, 1989. "Oligopolistic Pricing and the Effects of Aggregate Demand on Economic Activity," NBER Working Papers 3206, National Bureau of Economic Research, Inc.
  7. Ganelli, G., 2000. "Useful Government Spending, Direct Crowding Out and Fiscal Policy Interdependence," The Warwick Economics Research Paper Series (TWERPS) 547, University of Warwick, Department of Economics.
  8. Giovanni Ganelli, 2002. "The New Open Economy Macroeconomics of Government Debt," Trinity Economics Papers 200214, Trinity College Dublin, Department of Economics.
  9. Beetsma, Roel & Jensen, Henrik, 2003. "Contingent deficit sanctions and moral hazard with a stability pact," Journal of International Economics, Elsevier, vol. 61(1), pages 187-208, October.
  10. Philip R. Lane & Giovanni Ganelli, 2002. "Dynamic General Equilibrium Analysis: The Open Economy Dimension," Trinity Economics Papers 200212, Trinity College Dublin, Department of Economics.
  11. Sutherland, Alan, 1996. " Financial Market Integration and Macroeconomic Volatility," Scandinavian Journal of Economics, Wiley Blackwell, vol. 98(4), pages 521-39, December.
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