PRODUCTIVE PUBLIC SPENDING IN A BALASSA-SAMUELSON MODEL OF DUAL INFLATION

Jorge Blazquez () and Martin-Moreno, Jose M.
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Martin-Moreno, Jose M.: Departamento de Fundamentos de Analisis Economico e Historia Economica. Universidad de Vigo.

No 14, Documentos de trabajo - Análise Económica from IDEGA - Instituto Universitario de Estudios e Desenvolvemento de Galicia

Abstract: Dual inflation takes place when prices increases in non-tradable goods are higher than those of tradable goods. In this paper, we develop a model where public spending has a positive externality on the production of those sectors. The main results suggested by the paper are the following: 1)An increase in non-productive public spending does not generate dual inflation, as the usual Balassa-Samuelson result states and 2) An increase in productive public spending raises the productivity of those sectors and this can result in dual inflation, dual deflation or no effect on prices. Dual inflation only takes place when public spending has a bigger effect on the production technology of the tradable sector than on the non-tradable one.

Keywords: Dual inflation; productive public spending; competitiveness (search for similar items in EconPapers)
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