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Fiscal Policy in an Imperfectly Competitive Dynamic Small Open Economy

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  • Javier Coto-Martinez
  • Huw Dixon

Abstract

In this paper we develop a general model of an imperfectly competitive small open economy. There is a traded and non-traded sector, whose outputs are combined in order to produce a single final good that can be either consumed or invested. We make general assumptions about preferences and technology, and analyse the impact of fiscal policy on the economy. We find that the fiscal mutiplier is between zero and one, and provide sufficient conditions for it to be increasing in the degree of imperfect competition. We also are able to compare the multiplier under free-entry and with a fixed number of firms, the speed of convergence to equilibrium and welfare. A simple graphical representation of the model is developed.

Suggested Citation

  • Javier Coto-Martinez & Huw Dixon, "undated". "Fiscal Policy in an Imperfectly Competitive Dynamic Small Open Economy," Discussion Papers 99/19, Department of Economics, University of York.
    • Handle: RePEc:yor:yorken:99/19
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    File URL: https://www.york.ac.uk/media/economics/documents/discussionpapers/1999/9919.pdf
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    References listed on IDEAS

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    4. Heijdra, Ben J, 1998. "Fiscal Policy Multipliers: The Role of Monopolistic Competition, Scale Economies, and Intertemporal Substitution in Labour Supply," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 39(3), pages 659-696, August.
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    Cited by:

    1. Emmanuelle Taugourdeau, 2002. "Imperfect Competition and Fiscal Policy Transmission in a Two-Country Economy," Open Economies Review, Springer, vol. 13(1), pages 47-71, January.
    2. Giovanni Lombardo, "undated". "Sticky Prices, Markup and the Business Cycle: Some Evidence," Discussion Papers 01/06, Department of Economics, University of York.

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    More about this item

    Keywords

    imperfect competition; open economy; fiscal policy.;
    All these keywords.

    JEL classification:

    • E20 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - General (includes Measurement and Data)
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance

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