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Fixed Costs, The Balanced-Budget Multiplier And Welfare

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  • Partha Sen

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

Abstract

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.

Suggested Citation

  • Partha Sen, 2008. "Fixed Costs, The Balanced-Budget Multiplier And Welfare," Working papers 171, Centre for Development Economics, Delhi School of Economics.
  • Handle: RePEc:cde:cdewps:171
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    References listed on IDEAS

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    Cited by:

    1. Chang Yee Kwan, 2013. "Preferences, Welfare and Desirable Subsidies under Monopolistic Competition," Metroeconomica, Wiley Blackwell, vol. 64(4), pages 744-759, November.

    More about this item

    Keywords

    New-Keynesian Models; Monopolistic Competition;

    JEL classification:

    • E1 - Macroeconomics and Monetary Economics - - General Aggregative Models
    • E2 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment
    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance

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