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Imperfect Competition and Fiscal Policy Transmission in a Two-Country Economy

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  • Emmanuelle Taugourdeau

Abstract

This paper explores the interactions between countries implementing a fiscal policy in a monopolistic competition framework. The study of the fiscal multipliers shows that a fiscal expansion in the home country increases domestic output and diminishes foreign output in the short run. Profit redistribution to households constitutes the main channel of transmission. Both influence of the proportion of domestic firms owned by domestic households and the effect of the mark-up on the transmission of government policies are analysed. In the long run there is no interaction between countries since profits are zero. The welfare analysis reveals the possibility of positive externalities across countries, and the introduction of alternative taxation principles shows that the main results can be altered by the taxation scheme. Copyright Kluwer Academic Publishers 2002

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  • Emmanuelle Taugourdeau, 2002. "Imperfect Competition and Fiscal Policy Transmission in a Two-Country Economy," Open Economies Review, Springer, vol. 13(1), pages 47-71, January.
    • Handle: RePEc:kap:openec:v:13:y:2002:i:1:p:47-71
    DOI: 10.1023/A:1012263829324
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    References listed on IDEAS

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    Cited by:

    1. Stephen Nicar, 2015. "International Spillovers from U.S. Fiscal Policy Shocks," Open Economies Review, Springer, vol. 26(5), pages 1081-1097, November.

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