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Markups and fiscal policy: analytical framework and an empirical investigation

Georgios Christou () and Panagiotis Chronis ()
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Georgios Christou: Athens University of Economics and Business (former)
Panagiotis Chronis: Bank of Greece

No 221, Working Papers from Bank of Greece

Abstract: The paper focuses on the effects of fiscal policy on the industry-specific profit margin of a sector of an economy. This is a deviation from the existing literature, which focuses mainly on the effects of fiscal policy on the profit margin of the economy as a whole. In this work the price cost margin at the industry level is expressed as a function of the fiscal balance and other market variables such as industry share and price which are usually absent in a macro-analysis environment. Using a panel of ten European Union member countries for the period 1988-2005 we obtain the statistical results that support the existence of a non trivial relationship between price cost margin and fiscal policy, as it is expressed by the fiscal balance of a country. There are differences, however, between countries as well as industries reflecting different production and labor market conditions.

Keywords: fiscal balance; price cost margin; market share; manufacturing (search for similar items in EconPapers)
JEL-codes: H60 H62 L13 L16 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-pbe
Date: 2017-03
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