In this paper we study the transmission mechanism of fiscal policy based on possible changes in the elasticity of demand. These are obtained by assuming that firms face a balance of public and private demands, each characterized by different price elasticity. We show that in this set-up there exists a range of the technological conditions under which fiscal policy is expansionary, independently of the pro- or counter- cyclical nature of its impact on the desired mark-up.
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Università degli studi [Macerata] : Dipartimento di Scienze dell'Educazione e della Formazione : Biblioteca Piazzale Luigi Bertelli, 1 (Contrada Vallebona) 62100 - Macerata