Useful Government Spending, Direct Crowding-Out and Fiscal Policy Interdependence

This paper introduces perfect substitutability between private and public consumption in a dynamic, open economy with imperfect competition and nominal rigidities. This implies a direct crowding-out e¤ect that, generalising to the two-country case some well-known properties of a closed economy, tends to reduce consumption following both domestic and foreign expansions. A less expected result is that substitutability has a positive e¤ect on the short-run output spillover. We also show that, if we modify the model to allow for home bias in government spending, temporary fiscal expansions display a ”quasineutrality” property.


Issue Date:
Jan 01 2000
Publication Type:
Working or Discussion Paper
DOI and Other Identifiers:
Record Identifier:
https://ageconsearch.umn.edu/record/269299
Language:
English
Total Pages:
38
JEL Codes:
E62; F41; F42; H4




 Record created 2018-03-07, last modified 2020-10-28

Fulltext:
Download fulltext
PDF

Rate this document:

Rate this document:
1
2
3
 
(Not yet reviewed)