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Intertemporal Preferences, Imperfect Competition and Effective Fiscal Intervention


  • Molana, Hassan


This paper illustrates that, when good market imperfections cause the equilibrium level of output to be below its corresponding Walrasian level, an exogenous demand stimulus can raise employment and output if households' preferences exhibit some substitution between current leisure and future consumption. The elasticity of substitution is shown to provide a channel for an effective and stable fiscal intervention, enabling the government to formulate a combined tax and borrowing based fiscal policy which can raise the level of output without having any crowding out consequences for the private sector. Copyright 1998 by Blackwell Publishers Ltd and The Victoria University of Manchester

Suggested Citation

  • Molana, Hassan, 1998. "Intertemporal Preferences, Imperfect Competition and Effective Fiscal Intervention," The Manchester School of Economic & Social Studies, University of Manchester, vol. 66(2), pages 159-177, March.
  • Handle: RePEc:bla:manch2:v:66:y:1998:i:2:p:159-77

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    References listed on IDEAS

    1. Ohlsson, Henry & Vredin, Anders, 1996. " Political Cycles and Cyclical Policies," Scandinavian Journal of Economics, Wiley Blackwell, vol. 98(2), pages 203-218, June.
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    3. Lohmann, Susanne, 1993. "Electoral cycles and international policy cooperation," European Economic Review, Elsevier, vol. 37(7), pages 1373-1391, October.
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    5. Alogoskoufis, George S & Lockwood, Ben & Philippopoulos, Apostolis, 1992. "Wage Inflation, Electoral Uncertainty and the Exchange Rate Regime: Theory and UK Evidence," Economic Journal, Royal Economic Society, vol. 102(415), pages 1370-1394, November.
    6. Kenneth Rogoff & Anne Sibert, 1988. "Elections and Macroeconomic Policy Cycles," Review of Economic Studies, Oxford University Press, vol. 55(1), pages 1-16.
    7. Alesina, Alberto, 1987. "Macroeconomic Policy in a Two-party System as a Repeated Game," Scholarly Articles 4552531, Harvard University Department of Economics.
    8. Lindbeck, Assar, 1976. "Stabilization Policy in Open Economies with Endogenous Politicians," American Economic Review, American Economic Association, vol. 66(2), pages 1-19, May.
    9. Alberto Alesina, 1987. "Macroeconomic Policy in a Two-Party System as a Repeated Game," The Quarterly Journal of Economics, Oxford University Press, vol. 102(3), pages 651-678.
    10. William D. Nordhaus, 1975. "The Political Business Cycle," Review of Economic Studies, Oxford University Press, vol. 42(2), pages 169-190.
    11. Cukierman, Alex & Meltzer, Allan H, 1986. "A Positive Theory of Discretionary Policy, the Cost of Democratic Government and the Benefits of a Constitution," Economic Inquiry, Western Economic Association International, vol. 24(3), pages 367-388, July.
    12. Rogoff, Kenneth, 1990. "Equilibrium Political Budget Cycles," American Economic Review, American Economic Association, vol. 80(1), pages 21-36, March.
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    Cited by:

    1. Luís F. Costa & Huw Dixon, 2009. "Fiscal Policy under Imperfect Competition: A Survey," Working Papers Department of Economics 2009/25, ISEG - Lisbon School of Economics and Management, Department of Economics, Universidade de Lisboa.

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