IDEAS home Printed from https://ideas.repec.org/a/ids/ijpubp/v1y2006i3p266-278.html
   My bibliography  Save this article

Microfoundations of fiscal policy effectiveness: monopolistic competition and fiscal policy multipliers

Author

Listed:
  • Maria A. Caraballo
  • Carlos Usabiaga

Abstract

This paper focuses on the role of imperfect competition as a microfoundation for fiscal policy effectiveness. The seminal papers in this area conclude that the higher the degree of monopoly power the higher the value of fiscal policy multipliers. However, this result has been criticised because it depends on the assumptions of the model. We pay special attention to the assumptions on consumer behaviour, comparing a model with no income effect for the labour supply with a model where leisure is a normal good. Concerning fiscal policy effectiveness we show that the values of the multipliers are positive in any case and that the degree of effectiveness depends heavily on the approach taken. These results highlight the relevance of microfoundations to obtain economic policy conclusions. Regarding the relation between the degree of monopoly power and the value of the multipliers, we conclude that stable relations cannot be established.

Suggested Citation

  • Maria A. Caraballo & Carlos Usabiaga, 2006. "Microfoundations of fiscal policy effectiveness: monopolistic competition and fiscal policy multipliers," International Journal of Public Policy, Inderscience Enterprises Ltd, vol. 1(3), pages 266-278.
    • Handle: RePEc:ids:ijpubp:v:1:y:2006:i:3:p:266-278
    as

    Download full text from publisher

    File URL: http://www.inderscience.com/link.php?id=9803
    Download Restriction: Access to full text is restricted to subscribers.
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ids:ijpubp:v:1:y:2006:i:3:p:266-278. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sarah Parker (email available below). General contact details of provider: http://www.inderscience.com/browse/index.php?journalID=97 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.