Market structure and fiscal policy effectiveness

Hassan Molana, Junxi Zhang

    Research output: Contribution to journalArticlepeer-review

    7 Citations (Scopus)

    Abstract

    In a monopolistic competition macromodel with endogenous market structure, the fiscal multiplier is shown to consist of two components. One component depicts the response of output to a fiscal expansion through the conventional channels that disregard the role of market imperfections and a second one captures the effect of both firms’ market power and the policy induced change in the market structure. The latter effect – which is missing from the existing studies – is shown to be quite crucial in raising the fiscal multiplier even above unity, and also in improving consumers’ welfare when the labour market is competitive.
    Original languageEnglish
    Pages (from-to)147-164
    JournalScandinavian Journal of Economics
    Volume103
    Issue number1
    DOIs
    Publication statusPublished - Mar 2001

    Keywords

    • Imperfect competition
    • Monopoly power
    • Fiscal multiplier
    • Welfare

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