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Public Spending Management And Macroeconomic Interdependence

  • Giovanni Ganelli

This paper studies the international macroeconomic effects of microeconomic measures, aimed at improving the efficiency of public spending management by increasing the price-elasticity of public consumption. In order to do this, we develop a New Open Economy Macroeconomics (NOEM) model in which the elastiity of substitution between differentiated goods in public consumption is different from the one in private consumption and the optimal mark-up is endogenous. This allows us to disentangle the international effects of structural reforms that improve the efficiency of spending in the public sector. We find that such policies can significantly affect the macroeconomic interdependence pattern that follows asymmetric fiscal shoocks. In welfare terms, we find that the countries with a larger government sector have an incentive to promote global "public competition policies".

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Paper provided by Royal Economic Society in its series Royal Economic Society Annual Conference 2004 with number 31.

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Date of creation: 17 Sep 2004
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Handle: RePEc:ecj:ac2004:31
Contact details of provider: Postal: Office of the Secretary-General, School of Economics and Finance, University of St. Andrews, St. Andrews, Fife, KY16 9AL, UK
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  1. Obstfeld, Maurice & Rogoff, Kenneth, 1995. "Exchange Rate Dynamics Redux," CEPR Discussion Papers 1131, C.E.P.R. Discussion Papers.
  2. Lombardo, Giovanni & Sutherland, Alan, 2003. "Monetary and fiscal interactions in open economies," Working Paper Series 0289, European Central Bank.
  3. Lane, P.R. & Ganelli, G., 2002. "Dynamic General Equilibrium Analysis: The Open Economy Dimension," CEG Working Papers 20026, Trinity College Dublin, Department of Economics.
  4. Beetsma, Roel & Jensen, Henrik, 2003. "Contingent deficit sanctions and moral hazard with a stability pact," Journal of International Economics, Elsevier, vol. 61(1), pages 187-208, October.
  5. Gali, J., 1991. "Monopolistic Competition, Business Cycles and the Composition of Aggregate Demand," Papers 92-03, Columbia - Graduate School of Business.
  6. Ganelli, Giovanni, 2005. "The new open economy macroeconomics of government debt," Journal of International Economics, Elsevier, vol. 65(1), pages 167-184, January.
  7. Julio J. Rotemberg & Michael Woodford, 1989. "Oligopolistic Pricing and the Effects of Aggregate Demand on Economic Activity," NBER Working Papers 3206, National Bureau of Economic Research, Inc.
  8. Ganelli, Giovanni, 2003. "Useful government spending, direct crowding-out and fiscal policy interdependence," Journal of International Money and Finance, Elsevier, vol. 22(1), pages 87-103, February.
  9. Beetsma, Roel & Jensen, Henrik, 2003. "Mark-Up Fluctuations and Fiscal Policy Stabilization in a Monetary Union," CEPR Discussion Papers 4020, C.E.P.R. Discussion Papers.
  10. Sutherland, Alan, 1996. " Financial Market Integration and Macroeconomic Volatility," Scandinavian Journal of Economics, Wiley Blackwell, vol. 98(4), pages 521-39, December.
  11. Blanchard, Olivier Jean & Kiyotaki, Nobuhiro, 1987. "Monopolistic Competition and the Effects of Aggregate Demand," American Economic Review, American Economic Association, vol. 77(4), pages 647-66, September.
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