MARKUPS AND FISCAL POLICY: ANALYTICAL FRAMEWORK AND AN EMPIRICAL INVESTIGATION
Athens University of Economics and Business
Bank of Greece
The paper focuses on the effects of fiscal policy on the industry-specific profit margin of a sector of an economy. This is a deviation from the existing literature, which focuses mainly on the effects of fiscal policy on the profit margin of the economy as a whole. In this work the price cost margin at the industry level is expressed as a function of the fiscal balance and other market variables such as industry share and price which are usually absent in a macro-analysis environment. Using a panel of ten European Union member countries for the period 1988-2005 we obtain the statistical results that support the existence of a non trivial relationship between price cost margin and fiscal policy, as it is expressed by the fiscal balance of a country. There are differences, however, between countries as well as industries reflecting different production and labor market conditions.
JEL classifications: H60, H62, L13, L16
Keywords: fiscal balance, price cost margin, market share, manufacturing
Acknowledgments: We thank, Vassilis Droucopoulos, Heather Gibson, Margarita Katsimi, Dimitrios Hadzinikolaou for useful comments and suggestions. All remaining errors are ours. The views expressed in the paper are those of the authors and not necessarily reflect the views of the Bank of Greece.
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