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Fiscal Policy and Entrepreneurship

  • Katsuya Takii

This paper reexamines the effect of expansionary fiscal policy on the real GDP in the presense of entrepreneurship - firms' activities to predict and react to changes in consumers' taste. The existence of partial crowding out in this paper generates a trade off between private consumption and government expenditure. Since goverment expenditure can not reflect changes in consumers' taste, it reduces the importance of firms' ability to process local information for predicting changes in consumers' taste. It is shown that expansionary fiscal policy can lower the real GDP when idiosyncratic risk and the substitutability of goods are large, and firms have great ability to predict the changes. This paper also shows that expansionary fiscal policy discourgages investment in prediction ability in the short run, but has no effect in the long run.

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Paper provided by Econometric Society in its series Econometric Society 2004 North American Summer Meetings with number 320.

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Date of creation: 11 Aug 2004
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Handle: RePEc:ecm:nasm04:320
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  1. Thomas N. Hubbard, 2003. "Information, Decisions, and Productivity: On-Board Computers and Capacity Utilization in Trucking," American Economic Review, American Economic Association, vol. 93(4), pages 1328-1353, September.
  2. Katsuya Takii, 2003. "Prediction Ability," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 6(1), pages 80-98, January.
  3. Sherwin Rosen, 1997. "Austrian and Neoclassical Economics: Any Gains from Trade?," Journal of Economic Perspectives, American Economic Association, vol. 11(4), pages 139-152, Fall.
  4. Katsuya Takii, 2004. "Entrepreneurial Efficiency: Theory," Macroeconomics 0411005, EconWPA.
  5. Silvestre, Joaquim, 1993. "The Market-Power Foundations of Macroeconomic Policy," Journal of Economic Literature, American Economic Association, vol. 31(1), pages 105-41, March.
  6. Holmes, T.J. & Schmitz, J.A., 1988. "A Theory Of Enterpreneurship And Its Application To The Study Of Business Transfers," Working papers 8827, Wisconsin Madison - Social Systems.
  7. Katsuya Takii, 2004. "The Value of Adaptability," Industrial Organization 0406004, EconWPA.
  8. Startz, Richard, 1989. "Monopolistic Competition as a Foundation for Keynesian Macroeconomic Models," The Quarterly Journal of Economics, MIT Press, vol. 104(4), pages 737-52, November.
  9. Philippe Aghion & Peter Howitt, 1990. "A Model of Growth Through Creative Destruction," NBER Working Papers 3223, National Bureau of Economic Research, Inc.
  10. BĂ©nassy, Jean-pascal, 1997. "On the optimality of activist policies with a less informed government," CEPREMAP Working Papers (Couverture Orange) 9722, CEPREMAP.
  11. Davis, Steven J. & Haltiwanger, John, 1999. "Gross job flows," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 41, pages 2711-2805 Elsevier.
  12. Israel M. Kirzner, 1997. "Entrepreneurial Discovery and the Competitive Market Process: An Austrian Approach," Journal of Economic Literature, American Economic Association, vol. 35(1), pages 60-85, March.
  13. Alan J. Auerbach, 2002. "Is there a role for discretionary fiscal policy?," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, pages 109-150.
  14. Schmitz, James A, Jr, 1989. "Imitation, Entrepreneurship, and Long-run Growth," Journal of Political Economy, University of Chicago Press, vol. 97(3), pages 721-39, June.
  15. V. V. Chari & Patrick J. Kehoe, 1998. "Optimal fiscal and monetary policy," Staff Report 251, Federal Reserve Bank of Minneapolis.
  16. Kihlstrom, Richard E & Laffont, Jean-Jacques, 1979. "A General Equilibrium Entrepreneurial Theory of Firm Formation Based on Risk Aversion," Journal of Political Economy, University of Chicago Press, vol. 87(4), pages 719-48, August.
  17. Katsuya Takii, 2004. "Entrepreneurial Efficiency," Macroeconomics 0406007, EconWPA.
  18. Aghion, Philippe & Howitt, Peter, 1992. "A Model of Growth Through Creative Destruction," Scholarly Articles 12490578, Harvard University Department of Economics.
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