Fiscal episodes and market power

António Afonso, João Tovar Jalles

Research output: Contribution to journalArticle

Abstract

We assess the effect of fiscal episodes, as determined via alternative approaches, on GDP and on markups in a panel of 14 OECD countries. Our results with narrative action-based data show counter-cyclicality since negative fiscal shocks increase markups. Additional empirical exercises reveal that spending-based consolidation programs have a more counter-cyclical effect on the behaviour of markups over the short and medium term than tax-based ones. Moreover, in times of economic contraction the degree of counter-cyclicality of negative (positive) government spending (tax) shocks is larger than during economic expansions.

Original languageEnglish
Pages (from-to)233-250
Number of pages18
JournalOpen Economies Review
Volume28
Issue number2
DOIs
Publication statusPublished - Apr 2017

Keywords

  • Business cycle
  • Fiscal consolidation
  • GMM
  • Imperfect competition
  • Impulse response functions
  • Local projection

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