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Should Fiscal Policy be Different in a Non-Competitive Framework?

Listed author(s):
  • Gorostiaga, A.

This paper aims to study if imperfections in the labor market justify a fiscal policy where public spending, labor income tax rates and debt are set to stabilize output. We present a dynamic general equilibrium model and solve for the optimal policy considering two different labor market setups. First we assume a competitive labor market and then we introduce a union with monopoly power in the labor market. Both models reach the same conclusion as regards the stabilization policy: it is not optimal to use the fiscal policy to stabilize. We also find that government spending should be larger when a competitive labor market is assumed. These main results arise both under complete and incomplete markets for the debt.

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Paper provided by Centro de Estudios Monetarios Y Financieros- in its series Papers with number 9901.

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Length: 47 pages
Date of creation: 1999
Handle: RePEc:fth:cemfdt:9901
Contact details of provider: Postal:
Centro de Estudios Monetarios Y Financieros. Casado del Alisal, 5-28014 Madrid, Spain.

Phone: 914290551
Fax: 914291056
Web page: http://www.cemfi.es/
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  12. Gorostiaga, A., 1999. "Should Fiscal Policy be Different in a Non-Competitive Framework?," Papers 9901, Centro de Estudios Monetarios Y Financieros-.
  13. Kenneth L. Judd, 1997. "The Optimal Tax Rate for Capital Income is Negative," NBER Working Papers 6004, National Bureau of Economic Research, Inc.
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  15. Bernheim, B Douglas, 1991. "Optimal Fiscal and Monetary Policy: Some Recent Results," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 23(3), pages 540-542, August.
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  18. den Haan, Wouter J & Marcet, Albert, 1990. "Solving the Stochastic Growth Model by Parameterizing Expectations," Journal of Business & Economic Statistics, American Statistical Association, vol. 8(1), pages 31-34, January.
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  20. Jang-Ting Guo & Kevin J. Lansing, 1998. "Optimal taxation of capital income with imperfectly competitive product markets," Working Papers in Applied Economic Theory 98-04, Federal Reserve Bank of San Francisco.
  21. Robert E. Lucas Jr. & Nancy L. Stokey, 1982. "Optimal Fiscal and Monetary Policy in an Economy Without Capital," Discussion Papers 532, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
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  23. Marvin Goodfriend & Robert G. King, 1998. "The new neoclassical synthesis and the role of monetary policy," Working Paper 98-05, Federal Reserve Bank of Richmond.
  24. Gorostiaga Alonso, Miren Arantzazu, 2002. "Should Fiscal Policy be different in a Non-Competitive Framework?," DFAEII Working Papers 2002-28, University of the Basque Country - Department of Foundations of Economic Analysis II.
  25. Zhu, Xiaodong, 1992. "Optimal fiscal policy in a stochastic growth model," Journal of Economic Theory, Elsevier, vol. 58(2), pages 250-289, December.
  26. Kydland, Finn E. & Prescott, Edward C., 1980. "Dynamic optimal taxation, rational expectations and optimal control," Journal of Economic Dynamics and Control, Elsevier, vol. 2(1), pages 79-91, May.
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