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Useful Government Spending, Direct Crowding-Out and Fiscal Policy Interdependence

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  • Ganelli, Giovanni

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 e¤ect 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 substitutability has a positive e¤ect 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 ”quasineutrality” property.

Suggested Citation

  • Ganelli, Giovanni, 2000. "Useful Government Spending, Direct Crowding-Out and Fiscal Policy Interdependence," Economic Research Papers 269299, University of Warwick - Department of Economics.
    • Handle: RePEc:ags:uwarer:269299
    DOI: 10.22004/ag.econ.269299
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    More about this item

    Keywords

    Agricultural and Food Policy; Demand and Price Analysis;

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission
    • H4 - Public Economics - - Publicly Provided Goods

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