Optimal government spending in an economy with imperfectly competitive goods and labor markets
Shu-hua Chang () and
Additional contact information
Shu-hua Chang: Department of Public Finance & Taxation, National Taichung University of Science and Technology, 129 San-min Road, Section 3, Taichung 404, Taiwan
Southern Economic Journal, 2015, vol. 82, issue 2, 385-407
This article examines the growth- and welfare-maximizing government spending in an economy that is characterized by market imperfections, namely, unionization in the labor market and monopolistic competition in the goods market. To thoughtfully explore the optimal spending, two distinct scenarios where the government spending is financed by labor/capital income taxes are considered. Our analysis shows that the optimal growth-maximizing government spending is inconsistent with the welfare-maximizing government spending. Moreover, the growth-maximizing/welfare-maximizing government spending have quite different responses to distinctive market imperfections (markups in the goods and labor markets), particularly in the scenarios with distinctive financing modes. Our numerical study indicates that the growth-maximizing and welfare-maximizing government expenditures, in general, are more responsive to the change in the labor market friction than that in the product market friction and the growth-maximizing government spending is more likely to be lower than the welfare-maximizing government spending.
JEL-codes: O4 J5 (search for similar items in EconPapers)
References: Add references at CitEc
Citations Track citations by RSS feed
Downloads: (external link)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:sej:ancoec:v:82:2:y:2015:p:385-407
Access Statistics for this article
Southern Economic Journal is currently edited by Laura Razzolini
More articles in Southern Economic Journal from Southern Economic Association Contact information at EDIRC.
Bibliographic data for series maintained by Laura Razzolini ().