Optimal Fiscal Policies, Congestion and Over‐entry*

Abstract

By shedding light on market imperfections and the congestion of public goods, we show that free entry in a market equilibrium will lead to excessive entry relative to the social optimum. Moreover, by specifying a generalized congestion function, it is also shown that different fiscal policies, including labor income tax, capital income tax and government expenditure, play a distinct role in terms of remedying market distortions. Specifically, optimal income taxes decrease with the degree of market imperfections in order to remove the monopoly inefficiency, while they increase with the degree of congestion in order to remedy the adverse externality caused by congestion distortion. Since a higher degree of increasing returns to an expansion in the variety of intermediate goods is found to intensify the congestion effect of government infrastructure expenditure, the optimal rule of government expenditure proposed by Barro (1990) should be modified. Copyright The editors of the "Scandinavian Journal of Economics" 2007 .

Macroeconomic (in)stability and endogenous market structure with productive government expenditure

“…(9) and (10) into (6) and (7) yields the expressions above. See Chang et al (2007) for a similar statement. For details on the aggregate consistency condition, see Barro (1997, p. 168).…”

Industrial structure and economic performance: The role of productive public expenditure

“…8 The initial consumption level isC VS 0 ¼ ½ð1 À τ u þ θτ u Þðɛγ VS þ ρÞ=βð1 À θÞð1 À τ u Þ Àγ VS K 0 9 The importance of the optimal ratio of government spending is extensively discussed in the literature. For example, Chang, Hung, Shieh, and Lai (2007) developed an imperfect competition model with firm entry, finding that the optimal ratio of government spending should be set in relation to the extent of monopoly power. By separating government spending into federal and local government spending, Gong and Zou (2011) found the optimal ratio of government spending to be the sum of the productiveness of federal and local spending.…”

Franchise fee, contract bargaining, and economic growth

“…The theory of new Keynesian economics (Dixon 1987;Startz 1989) adopts the model of oligopoly or monopolistic competition in the final goods market to provide micro-economic foundations for macroeconomics. A series of related literature such as Smulders and van de Klundert (1995), Chang et al (2007), Dinopoulos and Syropoulos (2007), etc. supports this model and further involves the discussion of firm's conduct.…”