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

Arbeitspapier

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.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Cardiff Economics Working Papers ; No. E2012/7

Classification and Topics

• Classification: Wirtschaft ; Investment; Capital; Intangible Capital; Capacity ; Business Fluctuations; Cycles
• Subject: entry ; Ramsey ; fiscal policy ; macroeconomic dynamics

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Brito, Paulo ; Dixon, Huw
• Event: Veröffentlichung
• (who): Cardiff University, Cardiff Business School
• (where): Cardiff
• (when): 2012

Further information

• Handle: http://hdl.handle.net/10419/65724
• Last update: 10.03.2025, 11:44 AM CET