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Useful Government Spending, Direct Crowding Out and Fiscal Policy Interdependence

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  • Ganelli, G.

    (University of Warwick)

Abstract

This paper introduces perfect substitutability between private and public consumption in a dynamic, open economy with imperfect competition and nominal rigidities. This implies a direct crowding-out effect that, generalizing to the two-country case some well-known properties of a closed economy, tends to reduce consumption following both domestic and foreign expansions. A less expected result is that sub-stitutability has a positive effect on the short-run output spillover.

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File URL: http://www2.warwick.ac.uk/fac/soc/economics/research/workingpapers/2008/twerp547.pdf
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Bibliographic Info

Paper provided by University of Warwick, Department of Economics in its series The Warwick Economics Research Paper Series (TWERPS) with number 547.

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Length: 37 pages
Date of creation: 2000
Date of revision:
Handle: RePEc:wrk:warwec:547

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Keywords: COMPETITION ; PRICES ; FISCAL POLICY;

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References

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  18. Dixit, Avinash K & Stiglitz, Joseph E, 1975. "Monopolistic Competition and Optimum Product Diversity," The Warwick Economics Research Paper Series (TWERPS), University of Warwick, Department of Economics 64, University of Warwick, Department of Economics.
  19. Maurice J. Roche, 1996. "Government Spending and the International Business Cycle," Canadian Journal of Economics, Canadian Economics Association, Canadian Economics Association, vol. 29(4), pages 865-84, November.
  20. Svensson, Lars E O & van Wijnbergen, Sweder, 1989. "Excess Capacity, Monopolistic Competition, and International Transmission of Monetary Disturbances," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 99(397), pages 785-805, September.
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