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Profits, markups and entry: fiscal policy in an open economy

✍ Scribed by Javier Coto-Martı́nez; Huw Dixon

Publisher: Elsevier Science
Year: 2003
Tongue: English
Weight: 177 KB
Volume: 27
Category: Article
ISSN: 0165-1889
DOI: 10.1016/s0165-1889(01)00062-8

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✦ Synopsis

In this paper, we develop a general model of an imperfectly competitive small open economy. There is a traded and non-traded sector, whose outputs are combined in order to produce a single ÿnal good that can be either consumed or invested. We make general assumptions about preferences and technology, and analyze the impact of ÿscal policy on the economy. We ÿnd that the ÿscal multiplier is between zero and one, and provide su cient conditions for it to be increasing in the degree of imperfect competition. We also are able to compare the multiplier under free-entry and with a ÿxed number of ÿrms and welfare. A simple graphical representation of the model is developed.

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