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Fiscal stimulus in a model with endogenous firm entry

  • Totzek, Alexander
  • Winkler, Roland C.

This paper explores different fiscal stimuli within a business cycle model with an endogenous number of firms. We demonstrate that a changing number of firms is a crucial dimension for evaluating fiscal policy since it accelerates the impacts of fiscal policy. In the presence of demand stimuli fiscal multipliers are small and the number of firms may decline, in particular under distortionary tax financing. Policies that disburden private agents from income taxes, on the other hand, are effective in boosting economic activity and new firm creation.

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Paper provided by Christian-Albrechts-University of Kiel, Department of Economics in its series Economics Working Papers with number 2010,05.

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Date of creation: 2010
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Handle: RePEc:zbw:cauewp:201005
Contact details of provider: Postal: D-24098 Kiel,Wilhelm-Seelig-Platz 1
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Web page: http://www.vwl.uni-kiel.de/en

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  1. Fabio Ghironi & Sanjay K. Chugh, 2011. "Optimal Fiscal Policy with Endogenous Product Variety," Boston College Working Papers in Economics 775, Boston College Department of Economics.
  2. Gomes, Pedro Maia, 2010. "Fiscal Policy and the Labour Market: The Effects of Public Sector Employment and Wages," IZA Discussion Papers 5321, Institute for the Study of Labor (IZA).
  3. Eric Leeper & Todd B. Walker & Susan Shu-Chun Yang, 2009. "Government Investment And Fiscal Stimulus In The Short And Long Runs," Caepr Working Papers 2009-011, Center for Applied Economics and Policy Research, Economics Department, Indiana University Bloomington.
  4. Bilbiie, Florin O. & Ghironi, Fabio & Melitz, Marc J., 2012. "Endogenous Entry, Product Variety, and Business Cycles," Scholarly Articles 10914281, Harvard University Department of Economics.
  5. Leeper, Eric M. & Walker, Todd B. & Yang, Shu-Chun S., 2010. "Government investment and fiscal stimulus," Journal of Monetary Economics, Elsevier, vol. 57(8), pages 1000-1012, November.
  6. Faia, Ester & Lechthaler, Wolfgang & Merkl, Christian, 2010. "Fiscal Multipliers and the Labour Market in the Open Economy," IZA Discussion Papers 4849, Institute for the Study of Labor (IZA).
  7. Harald Uhlig & Mathias Trabandt, 2009. "How Far are We from the Slippery Slope? The Laffer Curve Revisited," Working Papers 2009-005, Becker Friedman Institute for Research In Economics.
  8. Lawrence Christiano & Martin Eichenbaum & Sergio Rebelo, 2011. "When Is the Government Spending Multiplier Large?," Journal of Political Economy, University of Chicago Press, vol. 119(1), pages 78 - 121.
  9. Bergin, Paul R. & Corsetti, Giancarlo, 2008. "The extensive margin and monetary policy," Journal of Monetary Economics, Elsevier, vol. 55(7), pages 1222-1237, October.
  10. Christian Broda & David E. Weinstein, 2010. "Product Creation and Destruction: Evidence and Price Implications," American Economic Review, American Economic Association, vol. 100(3), pages 691-723, June.
  11. Faia, Ester, 2012. "Oligopolistic competition and optimal monetary policy," Journal of Economic Dynamics and Control, Elsevier, vol. 36(11), pages 1760-1774.
  12. Paul R. Masson, 2008. "Monetary Policy," Chapters, in: International Handbook of Development Economics, Volumes 1 & 2, chapter 54 Edward Elgar.
  13. Cogan, John F. & Cwik, Tobias & Taylor, John B. & Wieland, Volker, 2009. "New Keynesian versus old Keynesian government spending multipliers," Working Paper Series 1090, European Central Bank.
  14. Vivien Lewis & Céline Poilly, 2011. "Firm entry, inflation and the monetary transmission mechanism," Working Paper Research 211, National Bank of Belgium.
  15. Devereux, Michael B. & Head, Allen C. & Lapham, Beverly J., 1996. "Aggregate fluctuations with increasing returns to specialization and scale," Journal of Economic Dynamics and Control, Elsevier, vol. 20(4), pages 627-656, April.
  16. Smets, Frank & Wouters, Rafael, 2007. "Shocks and Frictions in US Business Cycles: A Bayesian DSGE Approach," CEPR Discussion Papers 6112, C.E.P.R. Discussion Papers.
  17. Trabandt, Mathias & Uhlig, Harald, 2011. "The Laffer curve revisited," Journal of Monetary Economics, Elsevier, vol. 58(4), pages 305-327.
  18. V. Lewis, 2008. "Business Cycle Evidence on Firm Entry," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 08/539, Ghent University, Faculty of Economics and Business Administration.
  19. Florin O. Bilbiie & Fabio Ghironi & Marc J. Melitz, 2008. "Monetary Policy and Business Cycles with Endogenous Entry and Product Variety," NBER Chapters, in: NBER Macroeconomics Annual 2007, Volume 22, pages 299-353 National Bureau of Economic Research, Inc.
  20. Alessia Campolmi & Ester Faia & Roland Winkler, 2010. "Fiscal Calculus in a New Keynesian Model with Matching Frictions," Kiel Working Papers 1602, Kiel Institute for the World Economy.
  21. Benassy, Jean-Pascal, 1996. "Taste for variety and optimum production patterns in monopolistic competition," Economics Letters, Elsevier, vol. 52(1), pages 41-47, July.
  22. repec:zbw:cauewp:200911 is not listed on IDEAS
  23. Cwik, Tobias J. & Wieland, Volker, 2009. "Keynesian government spending multipliers and spillovers in the Euro area," CFS Working Paper Series 2009/25, Center for Financial Studies (CFS).
  24. Baxter, Marianne & King, Robert G, 1993. "Fiscal Policy in General Equilibrium," American Economic Review, American Economic Association, vol. 83(3), pages 315-34, June.
  25. Michele P. Cavallo, 2005. "Government employment and the dynamic effects of fiscal policy shocks," Working Paper Series 2005-16, Federal Reserve Bank of San Francisco.
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