Totzek, Alexander and Winkler, Roland C. (2010): Fiscal stimulus in a model with endogenous firm entry.
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This paper explores different fiscal stimuli within a business cycle model with an endogenous mass of firms which we estimate for the U.S. economy using Bayesian techniques. We demonstrate that a changing mass of firms is a crucial dimension for evaluating fiscal policy since it can both accelerate and decelerate the impacts of fiscal stimuli. When fiscal interventions cause the mass of firms to decline, an additional crowding-out effect of investment in new firms results in a multiplier below that of the standard RBC model. In the presence of demand stimuli, fiscal multipliers are small and the mass of firms may decline. This holds in particular under distortionary tax financing. By contrast, policies that disburden private agents from income taxes are effective in boosting economic activity and product creation.
|Item Type:||MPRA Paper|
|Original Title:||Fiscal stimulus in a model with endogenous firm entry|
|Keywords:||Fiscal Multipliers; Firm Entry; Product Variety|
|Subjects:||E - Macroeconomics and Monetary Economics > E6 - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, Macroeconomic Policy, and General Outlook > E62 - Fiscal Policy
E - Macroeconomics and Monetary Economics > E3 - Prices, Business Fluctuations, and Cycles > E32 - Business Fluctuations; Cycles
E - Macroeconomics and Monetary Economics > E2 - Macroeconomics: Consumption, Saving, Production, Employment, and Investment > E22 - Capital; Investment; Capacity
|Depositing User:||Roland Winkler|
|Date Deposited:||30. Nov 2010 13:25|
|Last Modified:||15. Feb 2013 22:42|
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Fiscal stimulus in model with endogenous firm entry. (deposited 19. Nov 2010 13:31)
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