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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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References

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  1. Totzek, Alexander, 2009. "Firms' heterogeneity, endogenous entry, and exit decisions," Economics Working Papers 2009,11, Christian-Albrechts-University of Kiel, Department of Economics.
  2. Tobias Cwik & Volker Wieland, 2010. "Keynesian government spending multipliers and spillovers in the euro area," Working Paper Series 1267, European Central Bank.
  3. Baxter, Marianne & King, Robert G, 1993. "Fiscal Policy in General Equilibrium," American Economic Review, American Economic Association, vol. 83(3), pages 315-34, June.
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  7. Merkl, Christian & Faia, Ester & Lechthaler, Wolfgang, 2010. "Fiscal Multipliers and the Labour Market in the Open Economy," Open Access publications from Kiel Institute for the World Economy C3-V3, Kiel Institute for the World Economy.
  8. Smets, Frank & Wouters, Rafael, 2007. "Shocks and Frictions in US Business Cycles: A Bayesian DSGE Approach," CEPR Discussion Papers 6112, C.E.P.R. Discussion Papers.
  9. V. Lewis & C. Poilly, 2011. "Firm Entry, Inflation and the Monetary Transmission Mechanism," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 11/705, Ghent University, Faculty of Economics and Business Administration.
  10. Bergin, Paul R. & Corsetti, Giancarlo, 2008. "The extensive margin and monetary policy," Journal of Monetary Economics, Elsevier, vol. 55(7), pages 1222-1237, October.
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  13. Eric M. Leeper & Todd B. Walker & Shu-Chun Susan Yang, 2009. "Government Investment and Fiscal Stimulus in the Short and Long Runs," NBER Working Papers 15153, National Bureau of Economic Research, Inc.
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  15. John F. Cogan & Tobias Cwik & John B. Taylor & Volker Wieland, 2009. "New Keynesian versus Old Keynesian Government Spending Multipliers," Working Paper Series 1090, European Central Bank.
  16. Christian Broda & David E. Weinstein, 2007. "Product Creation and Destruction: Evidence and Price Implications," NBER Working Papers 13041, National Bureau of Economic Research, Inc.
  17. 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.
  18. V. Lewis, 2008. "Business Cycle Evidence on Firm Entry," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 08/539, Ghent University, Faculty of Economics and Business Administration.
  19. Fabio Ghironi & Sanjay K. Chugh, 2011. "Optimal Fiscal Policy with Endogenous Product Variety," Boston College Working Papers in Economics 775, Boston College Department of Economics.
  20. Alessia Campolmi & Ester Faia & Roland Winkler, 2010. "Fiscal Calculus in a New Keynesian Model with Matching Frictions," Kiel Working Papers 1602, Kiel Institute for the World Economy.
  21. Pedro Gomes, 2011. "Fiscal policy and the labour market: the effects of public sector employment and wages," European Economy - Economic Papers 439, Directorate General Economic and Monetary Affairs (DG ECFIN), European Commission.
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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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