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Fiscal Stimulus and Endogenous Firm Entry in a Monopolistic Competition Macroeconomic Model

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  • Cheng†Wei Chang
  • Ching†Chong Lai
  • Juin†Jen Chang

Abstract

This paper sets up a monopolistic competition model featuring the returns to production specialization. Some novel results are derived from the analysis. First, the effect of a fiscal stimulus on consumption may be positive or negative, depending crucially upon whether the production function is characterized by increasing or decreasing returns to production specialization. Second, following a fiscal expansion, increasing returns to specialization lead to a positive linkage between real wages and aggregate output, while decreasing returns to specialization result in a negative relationship between real wages and aggregate output. Third, a fiscal expansion may raise social welfare, provided that the degree of increasing returns to production specialization is sufficiently large.

Suggested Citation

  • Cheng†Wei Chang & Ching†Chong Lai & Juin†Jen Chang, 2018. "Fiscal Stimulus and Endogenous Firm Entry in a Monopolistic Competition Macroeconomic Model," The Japanese Economic Review, Japanese Economic Association, vol. 69(2), pages 207-225, June.
    • Handle: RePEc:bla:jecrev:v:69:y:2018:i:2:p:207-225
    DOI: 10.1111/jere.12155
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    Cited by:

    1. Cheng‐wei Chang, 2020. "Endogenous overhead costs, firm size, and fiscal shocks," Scottish Journal of Political Economy, Scottish Economic Society, vol. 67(2), pages 223-230, May.
    2. Cheng-wei Chang & Ching-chong Lai, 2021. "Optimal fiscal policies and market structures with monopolistic competition," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 28(6), pages 1385-1411, December.
    3. Cheng-wei Chang & Ting-wei Lai, 2024. "Government spending and monopolistic competition with heterogeneous firm productivity," Journal of Economics, Springer, vol. 141(2), pages 101-135, March.
    4. Cheng-wei Chang & Ching-chong Lai & Ting-wei Lai, 2020. "Fiscal stimulus in a simple macroeconomic model of monopolistic competition with firm heterogeneity," The Japanese Economic Review, Springer, vol. 71(3), pages 447-477, July.

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