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http://hdl.handle.net/10419/36833
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| Title: | | Fiscal multipliers and the labour market in the open economy  |
| 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 Economists Online IZA Discussion Papers, Forschungsinstitut zur Zukunft der Arbeit (IZA)
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