FIXED COSTS, THE BALANCED-BUDGET MULTIPLIER AND WELFARE

Partha Sen
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Partha Sen: Department of Economics, Delhi School of Economics, Delhi, India

No 171, Working papers from Centre for Development Economics, Delhi School of Economics

Abstract: In a two-sector model, where one of the sectors is monopolistically competitive and subject to increasing returns to scale but without love for variety, we analyze the effects of a balanced budget fiscal expansion. Such an expansion could increase the welfare of the representative individual, if elasticities of substitution in production and consumption are low. A reorganization of production takes place--increasing returns enabling a rise in real income.

Keywords: New-Keynesian Models; Monopolistic Competition (search for similar items in EconPapers)
JEL-codes: E1 E2 L1 (search for similar items in EconPapers)
Pages: 14 pages
Date: 2008-09
New Economics Papers: this item is included in nep-mac
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Journal Article: FIXED COSTS, THE BALANCED BUDGET MULTIPLIER AND WELFARE* (2009)
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