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Fiscal Policy Multipliers: The Role of Monopolistic Competition, Scale Economies, and Intertemporal Substitution in Labour Supply

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  • Heijdra, Ben J

Abstract

A dynamic macroeconomic model of monopolistic competition is developed for the closed economy. Forward looking consumers demand differentiated goods, supply labor, and save part of their income in the form of shares. Producers manufacture the differentiated goods by using labor and capital. The author studies the short-run, transition, and long-run effects of fiscal policy. Comparisons with the New Classical case of perfect competition are made. Simple expressions for multipliers are derived. The sensitivity of the multipliers for diversity preference and Ethier productivity effects, intratemporal and intertemporal substitution effects, and markup effects under free and restricted entry are also studied. Copyright 1998 by Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association.

Suggested Citation

  • Heijdra, Ben J, 1998. "Fiscal Policy Multipliers: The Role of Monopolistic Competition, Scale Economies, and Intertemporal Substitution in Labour Supply," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 39(3), pages 659-696, August.
    • Handle: RePEc:ier:iecrev:v:39:y:1998:i:3:p:659-96
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