The Library

Useful government spending, direct crowding-out and fiscal policy interdependence

Tools

Ganelli, Giovanni (2000) Useful government spending, direct crowding-out and fiscal policy interdependence. Working Paper. Coventry: University of Warwick, Department of Economics. Warwick economic research papers (No.547).

Preview

PDF
WRAP_Ganelli_twerp547.pdf - Requires a PDF viewer such as GSview, Xpdf or Adobe Acrobat Reader
Download (226Kb)

Official URL: http://www2.warwick.ac.uk/fac/soc/economics/resear...

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

Official Date:

January 2000

Dates:

Date	Event
January 2000	Published

Number:

No.547

Number of Pages:

Status:

Not Peer Reviewed

Access rights to Published version:

Open Access

Funder:

Economic and Social Research Council (Great Britain) (ESRC)

Grant number:

R00429924153 (ESRC)

References:

[1] Aoki, M., (1981) Dynamic Analysis of Open Economies. New York: Academic Press
[2] Aschauer, D.A., (1985) ”Fiscal Policy and Aggregate Demand” American Economic Review 75, 117-27.
[3] Bailey, M.J., (1971) National Income and the Price Level: A Study in Macrotheory (Second Edition). McGraw-Hill. New York
[4] Ball, L. and D. Romer (1990) ”Real Rigidities and the Non-neutrality of Money” Review of Economic Studies 57, 183-204
[5] Barro, R.J., (1981) ”Output E¤ects of Government Purchases” Journal of Political Economy 89, 1086-1121
[6] Blanchard, O.J. and N. Kiyotaki (1987) ”Monopolistic Competition and the Effects of Aggregate Demand”, American Economic Review, Vol. 77, 647-66
[7] Buiter, W.H., (1977) ”Crowding-Out and the E¤ectiveness of Fiscal Policy” Journal of Public Economics Vol. 7, 309-328
[8] Corsetti, G., and P. Pesenti, (1997) ”Welfare and Macroeconomic Interdependence” mimeo, Yale University and Princeton University.
[9] Dixit, A.K., and J.E. Stiglitz, (1977) ”Monopolistic Competition and Optimum Product Diversity” American Economic Review, Vol. 67, 297-308.
[10] Dixon, H., and N. Rankin, (1994) ”Imperfect Competition and Macroeconomics: A Survey”, Oxford Economics Papers, Vol. 46, 171-199
[11] Fleming,M. (1962) ”Domestic Financial Policies Under Fixed and Under Floating Exchange Rates”, IMF Sta¤ Papers Vol. 9.
[12] Ganelli, G., (1998) ”Welfare E¤ects of Fiscal Policy in a Two-Country Model with Imperfect Competition”, (in Italian) Annali della Fondazione Einaudi Vol. 38
[13] Fischer, S., (1977) ”Long Term Contracts, Rational expectations, and the Optimal Money Supply Rule” Journal of Political Economy 85 (Feb.) 163-90
[14] Heijdra, B., and J.E. Ligthart, (1997) ”Keynesian Multipliers, Direct Crowding Out, and the Optimal Provision of Public Goods” Journal of Macroeconomics, Vol. 19 n.4, 803-826.
[15] Holmes, J.M. and Smith, D.J. (1972) ”The speci…cation of the Demand for Money and the Tax Multiplier” Journal of Political Economy, 80, 179-85
[16] Keynes, J.M. (1929) ”Can Lloyd George Do It?” in: J.M. Keynes, Essays in Persuasion (MacMillan, London) 118-134.
[17] Lane, P. R. (1999) ”The New Open Economy Macroeconomics: a Survey” CEPR DP No. 2115
[18] Mundell, R.A. (1968). International Economics. Macmillan, New York.
[19] Neary, J.P. and J.E. Stiglitz, (1983) ”Toward a Reconstruction of Keynesian Economics: Expectations and Constrained Equilibria” Quarterly Journal of Economics, Vol. 98, Supplement, pp. 199-228.
[20] Obstfeld, M. and K. Rogoff, (1995) ”Exchange Rate Dynamics Redux” Journal of Political Economy Vol. 103, pp. 624-660
[21] Obstfeld, M. and K. Rogoff,(1996) Foundations of International Macroeconomics (Ch 10) Cambridge, MA: MIT Press.
[22] Rankin, N. (1987) ”Disequilibrium and the Welfare-Maximising Levels of Government Spending, Taxation and Debt” Economic Journal Vol. 97 pp. 65-85
[23] Rankin, N. (1990) ”Macroeconomic Interdependence, Floating Exchange Rates, and Product Substitutability” in Private Behavior and Government Policy in Interdependent Economies, A.S. Courakis and M.P. Taylor (Eds.), Oxford university Press
[24] Silvestre, J. (1993) ”The Market-Power Foundations of Macroeconomics Policy” Journal of Economic Literature, XXXI, 105-141
[25] Sutherland A. (1996) ”Financial Market Integration and Macroeconomic Volatility” Scandinavian Journal of Economics, Vol. 98, 521-539
[26] Svensson„ L.E.O. (1987) ”International Fiscal Policy Transmission” Scandinavian Journal of Economics, Vol. 89 (3), 305-334.
[27] Svensson, L.E.O. and S. van Wijnbergen (1989) ”Excess Capacity, Monopolistic Competition and International Transmission of Monetary Disturbances” Economic Journal Vol. 99, 785-805