Optimal Fiscal Policy in a Multisector Model: The Price Consequences of Government Spending

Steven P. Cassou () and Arantza Gorostiaga ()

Journal of Public Economic Theory, 2009, vol. 11, issue 2, pages 177-201

Abstract: This paper investigates optimal fiscal policy in a static multisector model. A Ramsey type planner chooses tax rates on each good type as well as spending levels on each good type subject to an exogenous total expenditure constraint. It is shown that, like taxes, government spending policy has price effects and that these price effects have significant implications for optimal policy. These price effects imply a U shape to the government's objective function and this U shape results in boundary values for the choice of the spending allocation. In particular, it is shown that the optimal allocation of government spending tends to be concentrated on one good rather than spread among many goods. Copyright © 2009 Wiley Periodicals, Inc..

Date: 2009

Downloads: (external link)
http://www.blackwell-synergy.com/doi/abs/10.1111/j.1467-9779.2009.01406.x link to full text (text/html)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: http://EconPapers.repec.org/RePEc:bla:jpbect:v:11:y:2009:i:2:p:177-201

Ordering information: This journal article can be ordered from
http://www.blackwell ... bs.asp?ref=1097-3923

Access Statistics for this article

Journal of Public Economic Theory is edited by John P. Conley and Myrna Holtz Wooders

More articles in Journal of Public Economic Theory from Association for Public Economic Theory
Series data maintained by Christopher F. Baum ().