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Fiscal Policy and Entrepreneurship

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  • Katsuya Takii

    (Osaka School of International Public Policy, Osaka University)

Abstract

This paper reexamines the effect of expansionary fiscal policy on real GDP in the presence of entrepreneurship, which is defined as firms' activities to predict and adapt to changes in consumers' tastes. As government expenditure cannot reflect changes in consumers' tastes, it weakens the social role of the firms' ability to process local information for predicting the changes. Hence, government expenditure cannot perfectly substitute for private consumption. It is shown that expansionary fiscal policy can lower real GDP when idiosyncratic risk and the substitutability of goods are large, and when firms have a strong ability to predict changes in consumer tastes. In addition, this paper shows that expansionary fiscal policy discourages firms from investing in activities that aid prediction in the short run. However, expansionary fiscal policy does not influence investment in prediction ability in the long run.

Suggested Citation

  • Katsuya Takii, 2004. "Fiscal Policy and Entrepreneurship," Macroeconomics 0406006, University Library of Munich, Germany.
    • Handle: RePEc:wpa:wuwpma:0406006
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    13. Katsuya Takii, 2003. "Prediction Ability," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 6(1), pages 80-98, January.
    14. Alan J. Auerbach, 2002. "Is there a role for discretionary fiscal policy?," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, pages 109-150.
    15. Katsuya Takii, 2004. "Entrepreneurial Efficiency," Macroeconomics 0406007, University Library of Munich, Germany.
    16. Katsuya Takii, 2004. "The Value of Adaptability," Industrial Organization 0406004, University Library of Munich, Germany.
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    Cited by:

    1. Katsuya Takii, 2007. "The Persistence of Differences in Productivity, Wages, Skill Mixes and Profits Between Firms," Discussion Papers in Economics and Business 07-10, Osaka University, Graduate School of Economics.
    2. Katsuya Takii, 2009. "Entrepreneurial competition and its impact on the aggregate economy," Journal of Economics, Springer, vol. 97(1), pages 1-18, May.
    3. Hernán Herrera-Echeverri & Jerry Haar & Alexander Arrieta Jiménez & Manuel Araújo Zapata, 2015. "Devaluation, Competitiveness And New Business Formation In Emerging Countries," Journal of Developmental Entrepreneurship (JDE), World Scientific Publishing Co. Pte. Ltd., vol. 20(03), pages 1-22, September.
    4. Simon C. Parker, 2024. "Democracy, corruption, and endogenous entrepreneurship policy," Public Choice, Springer, vol. 198(3), pages 361-376, March.
    5. Masaru Sasaki & Katsuya Takii & Junmin Wan, 2012. "Horizontal Transfer and Promotion: New Evidence and an Interpretation from the Perspective of Task-Specific Human Capital," OSIPP Discussion Paper 12E006, Osaka School of International Public Policy, Osaka University.
    6. Maria Minniti, 2008. "The Role of Government Policy on Entrepreneurial Activity: Productive, Unproductive, or Destructive?," Entrepreneurship Theory and Practice, , vol. 32(5), pages 779-790, September.

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    More about this item

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory

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