Markups and fiscal transmission in a panel of OECD countries

Falko Juessen and Ludger Linnemann

Journal of Macroeconomics, 2012, vol. 34, issue 3, 674-686

Abstract: This paper studies the role of the markup of price over marginal cost for the transmission of fiscal policy shocks. We construct time series of markups allowing for fluctuations in capacity utilization and total factor productivity and use an aggregate production function that is more general than Cobb–Douglas. Including the constructed markup series in a bias-corrected panel vector autoregression with annual OECD data, we find that a positive shock to government spending tends to lower markups while raising output. The positive output response appears to result less from increases in hours worked than from the positive reaction of capital utilization.

Keywords: Fiscal policy; Government spending; Markups; Panel VAR (search for similar items in EconPapers)
JEL-codes: C33 E32 E62 (search for similar items in EconPapers)
Date: 2012
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Citations: View citations in EconPapers (26)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jmacro:v:34:y:2012:i:3:p:674-686

DOI: 10.1016/j.jmacro.2012.05.005

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