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MIXED INDUSTRIAL STRUCTURE AND SHORT‐RUN FISCAL MULTIPLIER
Author(s) -
CENSOLO ROBERTO,
COLOMBO CATERINA
Publication year - 2008
Publication title -
australian economic papers
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.351
H-Index - 15
eISSN - 1467-8454
pISSN - 0004-900X
DOI - 10.1111/j.1467-8454.2008.00338.x
Subject(s) - monopolistic competition , economics , imperfect competition , fiscal multiplier , homogeneous , perfect competition , short run , multiplier (economics) , commodity market , market structure , fiscal policy , macroeconomics , monetary economics , monopoly , microeconomics , government spending , market economy , finance , welfare , physics , thermodynamics
Existing studies on the fiscal multiplier under imperfect competition assume a symmetric market structure with identical firms. This paper examines the fiscal policy implications of introducing a multisectoral economy, where a composite commodity is offered in many varieties within a market of monopolistic competition and a homogeneous good is produced in a perfectly competitive environment. Within the context of this mixed industrial structure we show that the size of the short‐run multiplier crucially depends on the composition of public expenditure chosen by the government.