Location of Repository

Useful government spending, direct crowding-out and fiscal policy interdependence

By Giovanni Ganelli


This paper introduces perfect substitutability between private and public consumption in a dynamic, open economy with imperfect competition and nominal rigidities. This implies a direct crowding-out effect that, generalising to the two-country case some well-known properties of a closed economy, tends to reduce consumption following both domestic and foreign expansions. A less expected result is that sub-stitutability has a positive effect on the short-run output spillover. We also show that, if we modify the model to allow for home bias in government spending, temporary fiscal expansions display a "quasi-neutrality" property

Topics: HJ
Publisher: University of Warwick, Department of Economics
Year: 2000
OAI identifier: oai:wrap.warwick.ac.uk:1629

Suggested articles



  1. (1977). Crowding-Out and the E¤ectiveness of Fiscal Policy” doi
  2. (1987). Disequilibrium and the Welfare-Maximising Levels of Government Spending, doi
  3. (1962). Domestic Financial PoliciesUnderFixed and Under Floating Exchange Rates”,
  4. (1981). Dynamic Analysis of Open Economies.
  5. (1989). Excess Capacity, Monopolistic Competition and doi
  6. (1995). Exchange Rate Dynamics Redux” doi
  7. (1996). Financial Market Integration and Macroeconomic Volatility” doi
  8. (1985). Fiscal Policy and Aggregate Demand”
  9. (1994). Imperfect Competition and Macroeconomics: A Survey”, doi
  10. (1997). Keynesian Multipliers, Direct Crowding Out, and the Optimal Provision of Public Goods” doi
  11. (1977). Long Term Contracts, Rational expectations, and the Optimal Money Supply Rule” doi
  12. (1990). MacroeconomicInterdependence, FloatingExchange Rates, and Product Substitutability”
  13. (1987). Monopolistic Competition and the E¤ects of Aggregate Demand”, doi
  14. (1971). National Income and the Price Level: A Study in Macrotheory (Second Edition).
  15. (1981). Output E¤ects of Government Purchases” doi
  16. (1993). The Market-Power Foundations of Macroeconomics Policy”
  17. (1999). The New Open Economy Macroeconomics: a Survey” doi
  18. (1972). The speci…cation of the Demand for Money and the Tax Multiplier”
  19. (1983). Toward a Reconstruction of Keynesian Economics: doi
  20. (1998). Welfare E¤ects of Fiscal Policy in a Two-Country Model with Imperfect Competition”,

To submit an update or takedown request for this paper, please submit an Update/Correction/Removal Request.