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The Keynesian multiplier and the Pigou effect under substitution between private and public consumption

Corchon, Luis (2009): The Keynesian multiplier and the Pigou effect under substitution between private and public consumption.

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Abstract

In this paper we present a fixprice model in which private and public consumption show some degree of substitution. We offer formulae for the Keynesian multiplier which depend on this degree of substitution. We also show that there is a Pigou effect and that, sometimes, this effect is larger than the Keynesian multiplier.

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