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ELASTIC CAPITAL SUPPLY AND THE EFFECTS OF FISCAL POLICY
Author(s) -
DOLMAS JIM,
WYNNE MARK A.
Publication year - 1998
Publication title -
economic inquiry
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.823
H-Index - 72
eISSN - 1465-7295
pISSN - 0095-2583
DOI - 10.1111/j.1465-7295.1998.tb01736.x
Subject(s) - economics , fiscal policy , capital (architecture) , monetary economics , physical capital , macroeconomics , stock (firearms) , microeconomics , human capital , market economy , mechanical engineering , archaeology , history , engineering
Existing analyses of the effects of fiscal policy in general equilibrium models have typically been conducted under the assumption that the long‐run supply of capital is perfectly elastic at a fixed rate of time preference. These analyses have shown that the long‐run response of the capital stock to changes in fiscal policy is crucial to generating the potential for “multiplier” effects in these models. In this paper we ask, what are the implications of relaxing the assumption of perfectly elastic capital supply for the analysis of fiscal policy? We show that with less than perfectly elastic capital supply, the potential for multipliers is actually enhanced. ( JEL E62, D90)