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Macroeconomic Effects of Deregulation in Goods Market with Heterogeneous Firms

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  • Marco Arnone

    (Catholic University of Milan)

  • Diego Scalise

    (Catholic University of Milan)

Abstract

This paper builds on the Blanchard and Giavazzi (2003) model of deregulation. We concentrate on product market to construct a framework explaining in a more nuanced way the redistributive effects of deregulation between sectors and within the same sector, and possible oppositions to this policy by firms and workers. In a general equilibrium framework, we introduce two sectors(regulated and unregulated), heterogeneity in firms' productivity, and a…fixed cost of entry. In such a context effects of deregulation policies can be ambiguous depending on some parametric restrictions, and sometime counterproductive. As a result, deregulation policies are not always welfare improving: a deregulation action will succeed in increasing competition and reducing mark up when the economy is already partially deregulated (sufficiently high level of competition), but may achieve the opposite outcome when it is highly regulated. Additionally, we study the choice of the best policy instrument and the optimal sequencing in the use of instruments.

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Bibliographic Info

Paper provided by EconWPA in its series Macroeconomics with number 0512015.

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Length: 18 pages
Date of creation: 25 Dec 2005
Date of revision:
Handle: RePEc:wpa:wuwpma:0512015

Note: Type of Document - pdf; pages: 18
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  2. Paul Joskow & Nancy L. Rose, 1987. "The Effects of Economic Regulation," Working papers 447, Massachusetts Institute of Technology (MIT), Department of Economics.
  3. Olivier Blanchard & Francesco Giavazzi, 2001. "Macroeconomic Effects of Regulation and Deregulation in Goods and Labor Markets," NBER Working Papers 8120, National Bureau of Economic Research, Inc.
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  10. Mark J. Melitz, 2002. "The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity," NBER Working Papers 8881, National Bureau of Economic Research, Inc.
  11. Spector, David, 2002. "Competiton and the capital-labor conflict," CEPREMAP Working Papers (Couverture Orange) 0207, CEPREMAP.
  12. Gersbach, Hans, 2000. "Promoting Product Market Competition to Reduce Unemployment in Europe: An Alternative Approach?," Kyklos, Wiley Blackwell, vol. 53(2), pages 117-33.
  13. 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.
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  15. repec:rus:hseeco:122439 is not listed on IDEAS
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