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Endogenous Markups and Fiscal Policy

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  • Luís F. Costa

Abstract

This paper analyses a simple imperfectly competitive general equilibrium model where the entry mechanism generates an endogenous markup. In this second-best world fiscal policy is more effective than in Walrasian or in fixed-markup monopolistic competition models, as it produces efficiency gains through entry. Copyright Blackwell Publishing Ltd and The Victoria University of Manchester, 2004.

Suggested Citation

  • Luís F. Costa, 2004. "Endogenous Markups and Fiscal Policy," Manchester School, University of Manchester, vol. 72(s1), pages 55-71, September.
  • Handle: RePEc:bla:manchs:v:72:y:2004:i:s1:p:55-71
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    References listed on IDEAS

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    1. Torregrosa, Ramon J., 1998. "On the monotonicity of balanced budget multiplier under imperfect competition," Economics Letters, Elsevier, vol. 59(3), pages 331-335, June.
    2. Gali Jordi, 1994. "Monopolistic Competition, Business Cycles, and the Composition of Aggregate Demand," Journal of Economic Theory, Elsevier, vol. 63(1), pages 73-96, June.
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    11. Dixon, Huw, 1987. "A Simple Model of Imperfect Competition with Walrasian Features," Oxford Economic Papers, Oxford University Press, vol. 39(1), pages 134-160, March.
    12. Julio J. Rotemberg & Michael Woodford, 1991. "Markups and the Business Cycle," NBER Chapters,in: NBER Macroeconomics Annual 1991, Volume 6, pages 63-140 National Bureau of Economic Research, Inc.
    13. Heijdra, Ben J & van der Ploeg, Frederick, 1996. "Keynesian Multipliers and the Cost of Public Funds under Monopolistic Competition," Economic Journal, Royal Economic Society, vol. 106(438), pages 1284-1296, September.
    14. S. Baranzoni & P. Bianchi & L. Lambertini, 2000. "Multiproduct Firms, Product Differentiation, and Market Structure," Working Papers 368, Dipartimento Scienze Economiche, Universita' di Bologna.
    15. Richard Startz, 1989. "Monopolistic Competition as a Foundation for Keynesian Macroeconomic Models," The Quarterly Journal of Economics, Oxford University Press, vol. 104(4), pages 737-752.
    16. Reinhorn, Leslie J., 1998. "Imperfect competition, the Keynesian cross, and optimal fiscal policy," Economics Letters, Elsevier, vol. 58(3), pages 331-337, March.
    17. Mankiw, N. Gregory, 1988. "Imperfect competition and the Keynesian cross," Economics Letters, Elsevier, vol. 26(1), pages 7-13.
    18. Wu, Yangru & Zhang, Junxi, 2000. "Endogenous markups and the effects of income taxation:: Theory and evidence from OECD countries," Journal of Public Economics, Elsevier, vol. 77(3), pages 383-406, September.
    19. Joaquim Oliveira Martins & Stefano Scarpetta, 1999. "The Levels and Cyclical Behaviour of Mark-ups Across Countries and Market Structures," OECD Economics Department Working Papers 213, OECD Publishing.
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    Citations

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    Cited by:

    1. Luis F Costa & Huw D Dixon, "undated". "A Simple Business-Cycle Model with Schumpeterian Features," Discussion Papers 05/30, Department of Economics, University of York.
    2. Brito, Paulo B. & Costa, Luís F. & Dixon, Huw, 2013. "Non-smooth dynamics and multiple equilibria in a Cournot–Ramsey model with endogenous markups," Journal of Economic Dynamics and Control, Elsevier, vol. 37(11), pages 2287-2306.
    3. António Afonso & Luís F. Costa, 2013. "Market power and fiscal policy in OECD countries," Applied Economics, Taylor & Francis Journals, vol. 45(32), pages 4545-4555, November.
    4. Carlos Santos & Luis F. Costa & Paulo Brito, 2016. "Demand, Supply and Markup Fluctuations," FEUNL Working Paper Series wp609, Universidade Nova de Lisboa, Faculdade de Economia.
    5. Luís Costa, 2007. "GDP steady-state multipliers under monopolistic competition revisited," Portuguese Economic Journal, Springer;Instituto Superior de Economia e Gestao, vol. 6(3), pages 181-204, December.
    6. Luís Costa, 2006. "Entry and fiscal policy effectiveness in a small open economy within a Monetary Union," Portuguese Economic Journal, Springer;Instituto Superior de Economia e Gestao, vol. 5(1), pages 45-65, May.
    7. Luís F. Costa & Nuno Palma, 2006. "Productive Public Expenditure and Imperfect Competition with Endogenous Price Markup: Comment," Working Papers Department of Economics 2006/24, ISEG - Lisbon School of Economics and Management, Department of Economics, Universidade de Lisboa.
    8. Costa, Luís F. & Dixon, Huw David, 2011. "Fiscal policy under imperfect competition with flexible prices: An overview and survey," Economics - The Open-Access, Open-Assessment E-Journal, Kiel Institute for the World Economy (IfW), vol. 5, pages 1-57.
    9. 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.

    More about this item

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L16 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Industrial Organization and Macroeconomics; Macroeconomic Industrial Structure

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