Open Economies Review

, Volume 28, Issue 2, pp 233–250 | Cite as

Fiscal Episodes and Market Power

Research Article

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.

Keywords

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

JEL

D4 E3 E6 H6 

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Copyright information

© Springer Science+Business Media New York 2016

Authors and Affiliations

  1. 1.Department of EconomicsISEG/University of Lisbon – University of LisbonLisbonPortugal
  2. 2.UECE – Research Unit on Complexity and EconomicsLisbonPortugal
  3. 3.Center for Globalization and GovernanceNova School of Business and EconomicsLisboaPortugal

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