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Fiscal stimulus in a model with endogenous firm entry

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  • Totzek, Alexander
  • Winkler, Roland C.

Abstract

This paper explores different fiscal stimuli within a business cycle model with an endogenous number of firms. We demonstrate that a changing number of firms is a crucial dimension for evaluating fiscal policy since it accelerates the impacts of fiscal policy. In the presence of demand stimuli fiscal multipliers are small and the number of firms may decline, in particular under distortionary tax financing. Policies that disburden private agents from income taxes, on the other hand, are effective in boosting economic activity and new firm creation. --

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Bibliographic Info

Paper provided by Christian-Albrechts-University of Kiel, Department of Economics in its series Economics Working Papers with number 2010,05.

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Date of creation: 2010
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Handle: RePEc:zbw:cauewp:201005

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Keywords: Fiscal Multipliers; Firm Entry; Product Variety;

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  1. Trabandt, Mathias & Uhlig, Harald, 2006. "How Far Are We From the Slippery Slope? The Laffer Curve Revisited," CEPR Discussion Papers 5657, C.E.P.R. Discussion Papers.
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  8. Fabio Ghironi & Sanjay K. Chugh, 2010. "Optimal Fiscal Policy with Endogenous Product Variety," 2010 Meeting Papers 812, Society for Economic Dynamics.
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  20. Eric M. Leeper, Todd B. Walker, And Shu-Chun S. Yang, 2009. "Government Investment And Fiscal Stimulus In The Short And Long Runs," Caepr Working Papers 2009-011, Center for Applied Economics and Policy Research, Economics Department, Indiana University Bloomington.
  21. Michele P. Cavallo, 2005. "Government employment and the dynamic effects of fiscal policy shocks," Working Paper Series 2005-16, Federal Reserve Bank of San Francisco.
  22. Leeper, Eric M. & Walker, Todd B. & Yang, Shu-Chun S., 2010. "Government investment and fiscal stimulus," Journal of Monetary Economics, Elsevier, vol. 57(8), pages 1000-1012, November.
  23. Florin O. Bilbiie & Fabio Ghironi & Marc J. Melitz, 2007. "Monetary Policy and Business Cycles with Endogenous Entry and Product Variety," NBER Working Papers 13199, National Bureau of Economic Research, Inc.
  24. Benassy, Jean-Pascal, 1996. "Taste for variety and optimum production patterns in monopolistic competition," Economics Letters, Elsevier, vol. 52(1), pages 41-47, July.
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Cited by:
  1. Totzek, Alexander, 2011. "Banks, oligopolistic competition, and the business cycle: A new financial accelerator approach," Economics Working Papers 2011,02, Christian-Albrechts-University of Kiel, Department of Economics.

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