Fiscal stimulus in model with endogenous firm entry

Alexander Totzek and Roland Winkler ()

MPRA Paper from University Library of Munich, Germany

Abstract: This paper explores different fiscal stimuli within a business cycle model with an endogenous mass of firms which we estimate for the U.S. economy using Bayesian techniques. We demonstrate that a changing mass of firms is a crucial dimension for evaluating fiscal policy since it can both accelerate and decelerate the impacts of fiscal stimuli. When fiscal interventions cause the mass of firms to decline, an additional crowding-out effect of investment in new firms results in a multiplier below that of the standard RBC model. In the presence of demand stimuli, fiscal multipliers are small and the mass of firms may decline. This holds in particular under distortionary tax financing. By contrast, policies that disburden private agents from income taxes are effective in boosting economic activity and product creation.

Keywords: Fiscal Multipliers; Firm Entry; Product Variety (search for similar items in EconPapers)
JEL-codes: E22 E32 E62 (search for similar items in EconPapers)
Date: 2010-04-07, Revised 2010-11
New Economics Papers: this item is included in nep-dge, nep-ent and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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https://mpra.ub.uni-muenchen.de/26829/1/MPRA_paper_26829.pdf original version (application/pdf)
https://mpra.ub.uni-muenchen.de/27115/1/MPRA_paper_27115.pdf revised version (application/pdf)

Related works:
Working Paper: Fiscal stimulus in a model with endogenous firm entry (2010)
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:26829

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