Fiscal policy, entry and capital accumulation: hump-shaped responses

Brito, Paulo and Dixon, Huw ORCID: https://orcid.org/0000-0002-9875-8965 2012. Fiscal policy, entry and capital accumulation: hump-shaped responses. [Working Paper]. Cardiff Economics Working Papers, Cardiff: Cardiff University.

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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 impact after impact and before steady-state is reached. Output and capital per firm are also likely to be hump shaped.

Item Type:	Monograph (Working Paper)
Date Type:	Publication
Status:	Published
Schools:	Schools > Business (Including Economics)
Subjects:	H Social Sciences > HB Economic Theory
Publisher:	Cardiff University
Date of First Compliant Deposit:	30 March 2016
Last Modified:	28 Oct 2022 10:20
URI:	https://orca.cardiff.ac.uk/id/eprint/77930

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