This paper considers the effects of fiscal policy in a two-sector small open economy, with unionized labour markets, and heterogeneous types of imperfect competition in the product markets. By making the marginal propensity to import endogenous, the paper shows that there is no robust or general relationship between the balanced-budget multiplier and the degree of imperfect competition. The fiscal multiplier with distortionary taxes can be positive or negative, depending on the size of the importables sector and the foreign firm's market share. The normative rule for fiscal policy depends on the size of the fiscal multiplier. An increase in economic activity is insufficient by itself to induce the government to oversupply public goods relative to the Walrasian case.

Fiscal policy and welfare in a small open economy with imperfect competition / M. Santoni. - In: BULLETIN OF ECONOMIC RESEARCH. - ISSN 0307-3378. - 51:4(1999 Oct), pp. 287-318. [10.1111/1467-8586.00086]

Fiscal policy and welfare in a small open economy with imperfect competition

M. Santoni
1999

Abstract

This paper considers the effects of fiscal policy in a two-sector small open economy, with unionized labour markets, and heterogeneous types of imperfect competition in the product markets. By making the marginal propensity to import endogenous, the paper shows that there is no robust or general relationship between the balanced-budget multiplier and the degree of imperfect competition. The fiscal multiplier with distortionary taxes can be positive or negative, depending on the size of the importables sector and the foreign firm's market share. The normative rule for fiscal policy depends on the size of the fiscal multiplier. An increase in economic activity is insufficient by itself to induce the government to oversupply public goods relative to the Walrasian case.
Settore SECS-P/03 - Scienza delle Finanze
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Utilizza questo identificativo per citare o creare un link a questo documento: https://hdl.handle.net/2434/892278
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