Fiscal Stimulus and Endogenous Firm Entry in a Monopolistic Competition Macroeconomic Model

Cheng-Wei Chang, Ching-chong Lai and Juin-jen Chang
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Cheng-Wei Chang: Academia Sinica

The Japanese Economic Review, 2018, vol. 69, issue 2, No 6, 207-225

Abstract: Abstract This paper sets up a monopolistic competition model featuring the returns to production specialization. Some novel results are derived from the analysis. First, the effect of a fiscal stimulus on consumption may be positive or negative, depending crucially upon whether the production function is characterized by increasing or decreasing returns to production specialization. Second, following a fiscal expansion, increasing returns to specialization lead to a positive linkage between real wages and aggregate output, while decreasing returns to specialization result in a negative relationship between real wages and aggregate output. Third, a fiscal expansion may raise social welfare, provided that the degree of increasing returns to production specialization is sufficiently large.

Keywords: E21; E62; L23 (search for similar items in EconPapers)
Date: 2018
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Citations: View citations in EconPapers (4)

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DOI: 10.1111/jere.12155

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