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http://hdl.handle.net/10419/65724
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| Title: | | Fiscal policy, entry and capital accumulation: Hump-shaped responses  |
| Authors: | | Brito, Paulo Dixon, Huw |
| Issue Date: | | 2012 |
| Series/Report no.: | | Cardiff Economics Working Papers E2012/7 |
| 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. |
| Subjects: | | entry Ramsey fiscal policy macroeconomic dynamics |
| JEL: | | E22 D92 E32 D92 |
| Document Type: | | Working Paper |
| Appears in Collections: | | Cardiff Economics Working Papers
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