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.

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.

• Item Type: MPRA Paper
• Language: English
• Keywords: Disequilibrium Multiplier Pigou Effect
• Subjects: E - Macroeconomics and Monetary Economics > E6 - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook > E62 - Fiscal Policy; E - Macroeconomics and Monetary Economics > E1 - General Aggregative Models > E12 - Keynes ; Keynesian ; Post-Keynesian

References

Bailey, Martin J. (1971). National Income and the Price Level: A Study in Macroeconomic Theory. 2d ed. New York: McGraw-Hill.

Barro, Robert J. (1981). "Output Effects of Government Purchases". The Journal of Political Economy, 89, 6, 1086-1121.

Barro, Robert J. and Herschel I. Grossman (1976). Money, Employment and Inflation. Cambridge: Cambridge University Press.

Benassy, Jean-Pascal (1975). "Neo-Keynesian disequilibrium theory in a monetary economy". Review of Economic Studies 42, 503�23.

Benassy, Jean-Pascal (2007). "Ricardian equivalence and the intertemporal Keynesian multiplier". Economics Letters, 94, 1, 118-123.

Bewley, Truman F. (1999). Why Wages Don't Fall during a Recession. Cambridge, MA: Harvard University Press.

Blachard, Olivier J. and Stanley Fischer (1989). Lectures on Macroeconomics. MIT Press

Drèze, Jacques (1975). "Existence of an exchange equilibrium under price rigidities". International Economic Review 16, 301�20.

Heijdra, B., J. E. Ligthart and F. van der Ploeg (1998). "Fiscal Policy, Distortionary Taxation, and Direct Crowding Out under Monopolistic Competition". Oxford Economic Papers 50, 79-88.

Keynes, J. M. (1936). The General Theory of Employment, Interest and Money. London: Macmillan.

Linnemann, L. and A. Schabert (2003). "Can �scal spending stimulate private consumption?". Economic Letters 82, 173-179.

Malinvaud, Edmond (1977). The Theory of Unemployment Reconsidered. Oxford: Basil Blackwell.

Silvestre, Joaquim (1982). Fixprice analysis in exchange economies. Journal of Economic Theory, 26, 28-58

Younès, Yves (1975). "On the role of money in the process of exchange and the existence of a non-Walrasian equilibrium". Review of Economic Studies 42.