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Fixed Costs, The Balanced-Budget Multiplier And Welfare

  • Partha Sen

    (Department of Economics, Delhi School of Economics, Delhi, India)

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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Paper provided by Centre for Development Economics, Delhi School of Economics in its series Working papers with number 171.

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Length: 14 pages
Date of creation: Sep 2008
Date of revision:
Handle: RePEc:cde:cdewps:171
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