The impact of fiscal policy in an economy with a monopolistic output m
arket but perfectly competitive labour market is examined both in the
short run (with a fixed number of firms), and in the long run with fre
e entry. The main innovation of the paper is the generality of the ass
umptions about preferences and technology, which enable us to examine
the robustness of the relationship between the degree of monopoly and
the fiscal multiplier found by Startz (1989), Mankiw (1988) and Dixon
(1987). The specific results of these papers are found to rest on two
assumptions: constant returns and Cobb-Douglas preferences.