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Market power and fiscal policy in OECD countries

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  • Afonso, António
  • Costa, Luís F.

Abstract

We compute average mark-ups as a measure of market power throughout time and study their interaction with fiscal policy and macroeconomic variables in a VAR framework. From impulse-response functions the results, with annual data for a set of 14 OECD countries covering the period 1970-2007, show that the mark-up (i) depicts a pro-cyclical behaviour with productivity shocks and (ii) a mildly counter-cyclical behaviour with fiscal spending shocks. We also use a Panel Vector Auto-Regression analysis, increasing the efficiency in the estimations, which confirms the countryspecific results. JEL Classification: D4, E0, E3, H6

Suggested Citation

  • Afonso, António & Costa, Luís F., 2010. "Market power and fiscal policy in OECD countries," Working Paper Series 1173, European Central Bank.
  • Handle: RePEc:ecb:ecbwps:20101173
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    Citations

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    Cited by:

    1. António Afonso & João Tovar Jalles, 2015. "Fiscal Episodes, Technological Progress and Market Power," Working Papers Department of Economics 2015/09, ISEG - Lisbon School of Economics and Management, Department of Economics, Universidade de Lisboa.
    2. Juessen, Falko & Linnemann, Ludger, 2012. "Markups and fiscal transmission in a panel of OECD countries," Journal of Macroeconomics, Elsevier, vol. 34(3), pages 674-686.
    3. António Afonso & João Tovar Jalles, 2017. "Fiscal Episodes and Market Power," Open Economies Review, Springer, vol. 28(2), pages 233-250, April.
    4. Ali Abcha, 2014. "Imperfect competition, government spending and estimated markup," EconomiX Working Papers 2014-11, University of Paris Nanterre, EconomiX.
    5. Peter Claeys & Luis Costa, 2012. "“A Note on the Relationship Between the Cyclicality of Markups and Fiscal Policy”," AQR Working Papers 201208, University of Barcelona, Regional Quantitative Analysis Group, revised Sep 2012.
    6. 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.
    7. Carlos Santos & Luis F. Costa & Paulo Brito, 2016. "Demand, Supply and Markup Fluctuations," FEUNL Working Paper Series wp609, Universidade Nova de Lisboa, Faculdade de Economia.
    8. António Afonso & Jalles, 2016. "Markups' cyclical behaviour: the role of demand and supply shocks," Applied Economics Letters, Taylor & Francis Journals, vol. 23(1), pages 1-5, January.

    More about this item

    Keywords

    Fiscal Policy; Mark-up; Panel VAR; VAR;

    JEL classification:

    • D4 - Microeconomics - - Market Structure, Pricing, and Design
    • E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook
    • E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles
    • H6 - Public Economics - - National Budget, Deficit, and Debt

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