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Fiscal Episodes and Market Power

Antonio Afonso and Joao Jalles ()

Open Economies Review, 2017, vol. 28, issue 2, 233-250

Abstract: Abstract We assess the effect of fiscal episodes, as determined via alternative approaches, on GDP and on markups in a panel of 14 OECD countries. Our results with narrative action-based data show counter-cyclicality since negative fiscal shocks increase markups. Additional empirical exercises reveal that spending-based consolidation programs have a more counter-cyclical effect on the behaviour of markups over the short and medium term than tax-based ones. Moreover, in times of economic contraction the degree of counter-cyclicality of negative (positive) government spending (tax) shocks is larger than during economic expansions.

Keywords: Imperfect competition; Fiscal consolidation; Local projection; Business cycle; Impulse response functions; GMM; D4; E3; E6; H6 (search for similar items in EconPapers)
Date: 2017
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