Demand Elasticity and Fiscal Policy

Alessandra Chirco () and Caterina Colombo ()

Rivista italiana degli economisti, 2002, issue 1, 49-72

Abstract: In this paper we study the transmission mechanism of fiscal policy based on possible changes in the elasticity of demand. These are obtained by assuming that firms face a balance of public and private demands, each characterized by different price elasticity. We show that in this set-up there exists a range of the technological conditions under which fiscal policy is expansionary, independently of the pro- or counter- cyclical nature of its impact on the desired mark-up.

Date: 2002
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