Market structure and fiscal policy effectiveness

Hassan Molana, Junxi Zhang

    Research output: Working paperDiscussion paper

    196 Downloads (Pure)

    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
    PublisherUniversity of Dundee
    Publication statusPublished - 1999

    Publication series

    NameDundee Discussion Papers in Economics
    PublisherUniversity of Dundee
    No.104
    ISSN (Print)1473-236X

    Keywords

    • Imperfect competition
    • Monopoly power
    • Fiscal multiplier
    • Welfare

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