Electronic Resource
Berkeley, Calif.
:
Berkeley Electronic Press (now: De Gruyter)
The @B.E. journal of macroeconomics
7.2007, 1, art22
ISSN:
1555-0486
Source:
Berkeley Electronic Press Academic Journals
Topics:
Economics
Notes:
This paper extends the savers-spenders theory of Mankiw (2000) to analyze fiscal policy in a small open economy with endogenous labor supply. It is first shown that tax cuts have a short-run contractionary effect on domestic production, and increased public spending has a short-run expansionary effect. Although consistent with recent empirical work, this result contrasts with those of most other theoretical models. Transitory changes in demand have permanent real effects in our model, and we discuss the implications for real exchange rate dynamics. We also show how ``rational" agents may magnify or dampen the responses of ``irrational" agents, and discuss how, unlike in previous contributions, this is in our model purely a result of the shape of rational agents' utility functions.
Type of Medium:
Electronic Resource
URL:
http://www.bepress.com/bejm/vol7/iss1/art22
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