"Should Fiscal Policy Be Different in a Non-Competitive Framework?", Journal of Monetary Economics vol. 50/6 pp 1311-1331, 2003.

Abstract. This paper studies if imperfections in the labor market justify a different fiscal policy. We present a dynamic general equilibrium model with a Ramsey planner deciding about public spending, labor taxes and debt. Two different labor market setups are considered. First we assume a competitive labor market and then we introduce a union with monopoly power in the labor market. Both models reach the same conclusion as regards the cyclical properties of the optimal policy: it is not optimal to implement a countercyclical fiscal policy. We also find that government spending should be larger under perfect competition. These main results arise both under complete and incomplete markets for the debt.

Download Paper       Back to My Research