MIXED INDUSTRIAL STRUCTURE AND SHORT-RUN FISCAL MULTIPLIER

Roberto Censolo and Caterina Colombo

Australian Economic Papers, 2008, vol. 47, issue 2, pages 156-165

Abstract: Existing studies on the fiscal multiplier under imperfect competition assume a symmetric market structure with identical firms. This paper examines the fiscal policy implications of introducing a multisectoral economy, where a composite commodity is offered in many varieties within a market of monopolistic competition and a homogeneous good is produced in a perfectly competitive environment. Within the context of this mixed industrial structure we show that the size of the short-run multiplier crucially depends on the composition of public expenditure chosen by the government. Copyright 2008 The Authors. Journal compilation 2008 Blackwell Publishing Ltd/University of Adelaide and Flinders University.

Date: 2008

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