Fiscal policy boosts economy by increasing competition and driving profits.
The article explores how fiscal policy affects a small open economy with different sectors. By studying how taxes and government spending impact the economy, the researchers found that the fiscal multiplier is between zero and one. They also discovered that the multiplier increases with more competition in the market. Comparing the effects of free-entry versus a fixed number of firms, they were able to determine the impact on welfare. Overall, the study provides insights into how government policies can influence economic outcomes in an open economy.