Brito, Paulo and Dixon, Huw David  ORCID: https://orcid.org/0000-0002-9875-8965
2013.
Fiscal policy, entry and capital accumulation: Hump-shaped responses.
Journal of Economic Dynamics and Control
37
(10)
, pp. 2123-2155.
10.1016/j.jedc.2013.03.005
|
Abstract
In this paper we consider the entry and exit of firms in a Ramsey model with capital and an endogenous labour supply. At the firm level, there is a fixed cost combined with increasing marginal cost, which gives a standard U-shaped cost curve with optimal firm size. The costs of entry (exit) are quadratic in the flow of new firms. The number of firms becomes a second state variable and the entry dynamics gives rise to a richer set of dynamics than in the standard case: in particular, there is likely to be a hump shaped response of output to a fiscal shock with maximum effect after impact and before steady-state is reached. Output and capital per firm are also likely to be hump shaped.
| Item Type: | Article |
|---|---|
| Date Type: | Publication |
| Status: | Published |
| Schools: | Schools > Business (Including Economics) |
| Subjects: | H Social Sciences > HB Economic Theory |
| Uncontrolled Keywords: | Entry; Ramsey; Fiscal policy; Macroeconomic dynamics |
| Publisher: | Elsevier |
| ISSN: | 0165-1889 |
| Last Modified: | 25 Oct 2022 09:14 |
| URI: | https://orca.cardiff.ac.uk/id/eprint/57770 |
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