Should Fiscal Policy be Different in a Non-Competitive Framework?

A. Gorostiaga

Working Papers from Centro de Estudios Monetarios Y Financieros-

Abstract: This paper aims to study if imperfections in the labor market justify a fiscal policy where public spending, labor income tax rates and debt are set to stabilize output. We present a dynamic general equilibrium model and solve for the optimal policy considering two different labor market setups. First we assume a competitive labor market and then we introduce a union with monopoly power in the labor market. Both models reach the same conclusion as regards the stabilization policy: it is not optimal to use the fiscal policy to stabilize. We also find that government spending should be larger when a competitive labor market is assumed. These main results arise both under complete and incomplete markets for the debt.

Keywords: FISCAL POLICY; MARKET STRUCTURE; PUBLIC POLICY; LABOUR MARKET (search for similar items in EconPapers)
JEL-codes: D40 E62 J20 (search for similar items in EconPapers)
Pages: 47 pages
Date: 1999
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Citations: View citations in EconPapers (14)

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Related works:
Journal Article: Should fiscal policy be different in a non-competitive framework? (2003)
Working Paper: Should Fiscal Policy Be Di.erent in a Non-Competitive Framework? (2002)
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Persistent link: https://EconPapers.repec.org/RePEc:fth:cemfdt:9901

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