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Fiscal Policy, Distortionary Taxation, and Direct Crowding Out under Monopolistic Competition

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  • Heijdra, Ben J
  • Ligthart, Jenny E
  • van der Ploeg, Frederick

Abstract

A simple macroeconomic model with monopolistic competition on the goods market is developed which displays Keynesian features. The model is used to study the effects of a rise in public spending on national income. The model extends the literature in two directions. First, the authors assume that the government balances its budget by employing distortionary income taxation. Second, they allow for direct crowding out since public consumption enters private utility in a nonseparable fashion. With upward sloping labor supply, an increase in public spending depresses national income, more so in the long run than in the short run. Copyright 1998 by Royal Economic Society.

Suggested Citation

  • Heijdra, Ben J & Ligthart, Jenny E & van der Ploeg, Frederick, 1998. "Fiscal Policy, Distortionary Taxation, and Direct Crowding Out under Monopolistic Competition," Oxford Economic Papers, Oxford University Press, vol. 50(1), pages 79-88, January.
    • Handle: RePEc:oup:oxecpp:v:50:y:1998:i:1:p:79-88
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    Cited by:

    1. Luis Carlos Corchón, 2010. "The Keynesian multiplier and the Pigou effect under substitution between private and public consumption," Economics Bulletin, AccessEcon, vol. 30(1), pages 829-836.
    2. Philippe Quirion & Meriem Hamdi-Cherif, 2007. "General equilibrium impact of an energy-saving policy in the public sector," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 38(2), pages 245-258, October.
    3. Ramón Torregrosa, 2008. "Macroeconomic effects of an indirect tax substitution," Journal of Economics, Springer, vol. 94(3), pages 199-221, September.
    4. 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.
    5. Coto-Martinez, Javier, 2006. "Public capital and imperfect competition," Journal of Public Economics, Elsevier, vol. 90(1-2), pages 349-378, January.
    6. Lockwood, Ben, 2003. "Imperfect competition, the marginal cost of public funds and public goods supply," Journal of Public Economics, Elsevier, vol. 87(7-8), pages 1719-1746, August.
    7. Jim Malley & Hassan Molana, 2002. "Efficiency Wages, Unemployment and Macroeconomic Policy," Dundee Discussion Papers in Economics 126, Economic Studies, University of Dundee.
    8. Pasquale Commendatore & Ingrid Kubin, 2009. "Dynamic effects of regulation and deregulation in goods and labour markets," Oxford Economic Papers, Oxford University Press, vol. 61(3), pages 517-537, July.
    9. Jim Malley & Hassan Molana, 2000. "Monopolistic Competition, Efficiency Wages and Perverse Effects of Demand Shock," Working Papers 2000_20, Business School - Economics, University of Glasgow, revised Feb 2001.
    10. Emmanuelle Taugourdeau, 2002. "Imperfect Competition and Fiscal Policy Transmission in a Two-Country Economy," Open Economies Review, Springer, vol. 13(1), pages 47-71, January.
    11. Molana, Hassan & Montagna, Catia, 2000. "Market structure, cost asymmetries, and fiscal policy effectiveness," Economics Letters, Elsevier, vol. 68(1), pages 101-107, July.
    12. Hassan Molana & Junxi Zhang, 2001. "Market Structure and Fiscal Policy Effectiveness," Scandinavian Journal of Economics, Wiley Blackwell, vol. 103(1), pages 147-164, March.
    13. Perendia, George & Tsoukis, Chris, 2012. "The Keynesian multiplier, news and fiscal policy rules in a DSGE model," Dynare Working Papers 25, CEPREMAP.
    14. repec:dun:dpaper:89 is not listed on IDEAS

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