Can Fiscal Policy Improve Welfare in a Small Dependent Economy with Feedback Effects?

Luis Costa

Manchester School, 2001, vol. 69, issue 4, 418-439

Abstract: I develop an intertemporal general equilibrium two‐sector model for a small dependent economy. Firms in the non‐tradable‐good sector are assumed to be large, both at the industry and the economy levels, and to compete over quantities. The exchange rate is fixed and financial capital is perfectly mobile. I study the effects of government purchases of goods on the macroeconomic short‐ and long‐run equilibria when entry is possible. Sufficient conditions for welfare improvement are also derived.

Date: 2001
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