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Market power and fiscal policy in OECD countries

  • Afonso, António
  • Costa, Luís F.

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

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Paper provided by European Central Bank in its series Working Paper Series with number 1173.

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Date of creation: Apr 2010
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Handle: RePEc:ecb:ecbwps:20101173
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