Brito, PauloDixon, Huw2024-04-012024-04-012012-03-12Brito, Paulo and Huw Dixon .(2012). “Fiscal policy, entry and capital accumulation : Hump-shaped responses”. Cardiff Business School .Working Paper No. E2012/7. (Search PDF in 2024).1749-6101http://hdl.handle.net/10400.5/30498In this paper we consider the entry and exit of firms in a Ramsey model with capital and an endogenous labour supply. At the firm level, there is a fixed cost combined with increasing marginal cost, which gives a standard U-shaped cost curve with optimal firm size. The costs of entry (exit) are quadratic in the flow of new firms. The number of firms becomes a second state variable and the entry dynamics gives rise to a richer set of dynamics than in the standard case: in particular, there is likely to be a hump shaped response of output to a fiscal shock with maximum impact after impact and before steady-state is reached. Output and capital per firm are also likely to be hump shaped.engEntryRamseyFiscal PolicyMacroeconomic Dynamicsworking paper