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Public Spending Management and Macroeconomic Interdependence

Author/Editor: Ganelli, Giovanni
Authorized for Distribution: June 1, 2004
Electronic Access: Free Full Text (PDF file size is 368KB)
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Disclaimer: This Working Paper should not be reported as representing the views of the IMF. The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate.

Summary: This paper studies, in the context of a New Open Economy Macroeconomics (NOEM) model, the effects of "public competition policies" aimed at improving the efficiency of public spending. Such measures are modeled as an increase in the price elasticity of public consumption. The paper finds that public competition policies significantly affect macroeconomic interdependence across countries. Following a domestic fiscal expansion, an higher public price elasticity increases the substitutability between goods purchased by the domestic and the foreign governments. The same exchange rate variation can therefore sustain larger shifts in relative demand for goods. The expenditure-switching effect is magnified, implying a larger change in relative output. In welfare terms, countries with a larger government sector have an incentive to promote public competition policies.
 
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Series: Working Paper No. 04/102
Subject(s): Government expenditures | Economic models
Author's keyword(s): Public competition policies | NOEM | macroeconomic interdependence | government spending
 
English  
    Published:   June 1, 2004        
    ISBN/ISSN:   1934-7073   Format:   Paper
    Stock No:   WPIEA1022004   Pages:   21
    Price:   US$15.00 (Academic Rate: US$15.00 )
       
     
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