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Should fiscal policy be different in a non-competitive framework?

  • Gorostiaga, Arantza

This paper studies if imperfections in the labor market justify a diferent fiscal policy. We present a dynamic general equilibrium model with a Ramsey planner deciding about public spending, labor taxes and debt. Two diferent labor market setups are considered. First we assume a competitive labor market and then we introduce a union with monopoly power. Both models reach the same conclusion as regards the cyclical properties of the optimal policy: it is not optimal to implement a countercyclical fiscal policy. We also find that government spending should be larger under perfect competition. These main results arise both under complete and incomplete markets for the debt.

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Article provided by Elsevier in its journal Journal of Monetary Economics.

Volume (Year): 50 (2003)
Issue (Month): 6 (September)
Pages: 1311-1331

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Handle: RePEc:eee:moneco:v:50:y:2003:i:6:p:1311-1331
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/505566

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