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Fixed Costs, The Balanced Budget Multiplier And Welfare

  • PARTHA SEN

In a two-sector model, where one of the sectors is monopolistically competitive and subject to increasing returns to scale but without love for variety, we analyze the effects of a balanced budget fiscal expansion. Such an expansion could increase the welfare of the representative individual, if elasticities of substitution in production and consumption are low. A reorganization of production takes place--increasing returns enabling a rise in real income.

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File URL: http://www.blackwell-synergy.com/doi/abs/10.1111/j.1468-5876.2008.00459.x
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Article provided by Japanese Economic Association in its journal Japanese Economic Review.

Volume (Year): 60 (2009)
Issue (Month): 3 ()
Pages: 395-404

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Handle: RePEc:bla:jecrev:v:60:y:2009:i:3:p:395-404
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