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Business Formation and Aggregate Investment

  • Keuschnigg, Christian

The paper proposes an intertemporal equilibrium model with monopolistic competition and start-up investment with variable capacity to explain the nexus between business formation and medium-run growth. An investment externality is identified that results in under-accumulation of capital in the decentralized market equilibrium and, thus, creates investment multipliers. Some form of investment promotion is called for. The paper compares the effectiveness of policies to promote small business formation with a general investment tax credit.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 1515.

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Date of creation: Nov 1996
Date of revision:
Handle: RePEc:cpr:ceprdp:1515
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  1. Benassy, Jean-Pascal, 1996. "Monopolistic competition, increasing returns to specialization and output persistence," Economics Letters, Elsevier, vol. 52(2), pages 187-191, August.
  2. Robert E. Hall, 1986. "The Relation Between Price and Marginal Cost in U.S. Industry," NBER Working Papers 1785, National Bureau of Economic Research, Inc.
  3. Romer, Paul M, 1987. "Growth Based on Increasing Returns Due to Specialization," American Economic Review, American Economic Association, vol. 77(2), pages 56-62, May.
  4. Barro, Robert J. & Sala-i-Martin, Xavier, 1992. "Public Finance in Models of Economic Growth," CEPR Discussion Papers 630, C.E.P.R. Discussion Papers.
  5. Satyajit Chatterjee & Russell W. Cooper, 1993. "Entry and exit, product variety and the business cycle," Working Papers 93-30, Federal Reserve Bank of Philadelphia.
  6. Dixit, Avinash K & Stiglitz, Joseph E, 1975. "Monopolistic Competition and Optimum Product Diversity," The Warwick Economics Research Paper Series (TWERPS) 64, University of Warwick, Department of Economics.
  7. Heijdra, Ben J, 1998. "Fiscal Policy Multipliers: The Role of Monopolistic Competition, Scale Economies, and Intertemporal Substitution in Labour Supply," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 39(3), pages 659-96, August.
  8. Caballero, R.J. & Lyons, R.K., 1991. "External Effects in U.S. Procyclical Productivity," Papers 91-19, Columbia - Graduate School of Business.
  9. Basu, S., 1993. "Intermediate Goods and Business Cycles: Implications for Productivity and Welfare," Papers 93-23, Michigan - Center for Research on Economic & Social Theory.
  10. Hornstein, Andreas, 1993. "Monopolistic competition, increasing returns to scale, and the importance of productivity shocks," Journal of Monetary Economics, Elsevier, vol. 31(3), pages 299-316, June.
  11. Basu, Susanto & Fernald, John G, 1997. "Returns to Scale in U.S. Production: Estimates and Implications," Journal of Political Economy, University of Chicago Press, vol. 105(2), pages 249-83, April.
  12. repec:oup:qjecon:v:106:y:1991:i:2:p:445-502 is not listed on IDEAS
  13. Ethier, Wilfred J, 1982. "National and International Returns to Scale in the Modern Theory of International Trade," American Economic Review, American Economic Association, vol. 72(3), pages 389-405, June.
  14. Jovanovic, B., 1993. "The Diversification of Production," Working Papers 93-11, C.V. Starr Center for Applied Economics, New York University.
  15. repec:oup:restud:v:59:y:1992:i:4:p:645-61 is not listed on IDEAS
  16. Steven J. Davis & John Haltiwanger, 1990. "Gross Job Creation and Destruction: Microeconomic Evidence and Macroeconomic Implications," NBER Chapters, in: NBER Macroeconomics Annual 1990, Volume 5, pages 123-186 National Bureau of Economic Research, Inc.
  17. repec:oup:restud:v:43:y:1976:i:2:p:217-35 is not listed on IDEAS
  18. repec:oup:qjecon:v:103:y:1988:i:4:p:695-713 is not listed on IDEAS
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