Ganelli, Giovanni (2000) Useful government spending, direct crowding-out and fiscal policy interdependence. Working Paper. University of Warwick, Department of Economics, Coventry.

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Abstract

This paper introduces perfect substitutability between private and public consumption in a dynamic, open economy with imperfect competition and nominal rigidities. This implies a direct crowding-out effect that, generalising to the two-country case some well-known properties of a closed economy, tends to reduce consumption following both domestic and foreign expansions. A less expected result is that sub-stitutability has a positive effect on the short-run output spillover. We also show that, if we modify the model to allow for home bias in government spending, temporary fiscal expansions display a "quasi-neutrality" property.

Item Type:	Working or Discussion Paper (Working Paper)
Subjects:	H Social Sciences > HJ Public Finance
Divisions:	Faculty of Social Sciences > Economics
Library of Congress Subject Headings (LCSH):	Competition, Imperfect, Price maintenance, Consumption (Economics), Fiscal policy
Series Name:	Warwick economic research papers
Publisher:	University of Warwick, Department of Economics
Place of Publication:	Coventry
Date:	January 2000
Number:	No.547
Number of Pages:	38
Status:	Not Peer Reviewed
Access rights to Published version:	Open Access
Funder:	Economic and Social Research Council (Great Britain) (ESRC)
Grant number:	R00429924153 (ESRC)
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URI:	http://wrap.warwick.ac.uk/id/eprint/1629

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