EconStor >
Forschungsinstitut zur Zukunft der Arbeit (IZA), Bonn >
IZA Discussion Papers, Forschungsinstitut zur Zukunft der Arbeit (IZA) >

Please use this identifier to cite or link to this item:

http://hdl.handle.net/10419/36833
  
Title:Fiscal multipliers and the labour market in the open economy PDF Logo
Authors:Faia, Ester
Lechthaler, Wolfgang
Merkl, Christian
Issue Date:2010
Series/Report no.:Discussion paper series // Forschungsinstitut zur Zukunft der Arbeit 4849
Abstract:Several contributions have recently assessed the size of fiscal multipliers both in RBC models and New Keynesian models. None of the studies considers a model with frictional labour markets which is a crucial element, particularly at times in which much of the fiscal stimulus has been directed toward labour market measures. We use an open economy model (more specifically, a currency area calibrated to the European Monetary Union) with labour market frictions in the form of labour turnover costs and workers' heterogeneity to measure fiscal multipliers. We compute short and long run multipliers and open economy spillovers for five types of fiscal packages: pure demand stimuli and consumption tax cuts return very small multipliers; income tax cuts and hiring subsidies deliver larger multipliers, as they reduce distortions in sclerotic labour markets; short-time work (German Kurzarbeit) returns negative short-run multipliers, but stabilises employment. Our model highlights a novel dimension through which multipliers operate, namely the labour demand stimulus which occurs in a model with non-walrasian labour markets.
Subjects:Fiscal multipliers
fiscal packages
labour market frictions
JEL:E62
H30
J20
H20
Document Type:Working Paper
Appears in Collections:Publikationen von Forscherinnen und Forschern des IfW
IZA Discussion Papers, Forschungsinstitut zur Zukunft der Arbeit (IZA)

Files in This Item:
File Description SizeFormat
62266641X.pdf437.71 kBAdobe PDF
No. of Downloads: Counter Stats
Download bibliographical data as: BibTeX
Share on:http://hdl.handle.net/10419/36833

Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.