Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/260879 
Year of Publication: 
2022
Series/Report no.: 
CESifo Working Paper No. 9749
Publisher: 
Center for Economic Studies and ifo Institute (CESifo), Munich
Abstract: 
We study empirically how various labor market institutions – (i) union density, (ii) unemployment benefit remuneration, and (iii) employment protection – shape fiscal multipliers and output volatility. Our theoretical model highlights that more stringent labor market institutions attenuate both fiscal spending multipliers and macroeconomic volatility. This is validated empirically by an interacted panel vector autoregressive model estimated for 16 OECD countries. The strongest effects emanate from employment protection, followed by union density. While some labor market institutions mitigate the contemporaneous impact of shocks, they, however, reinforce their propagation mechanism. The main policy implication is that stringent labor market institutions render cyclical fiscal policies less relevant for macroeconomic stabilization.
Subjects: 
fiscal policy
fiscal multipliers
labor market institutions
interacted panel VAR
JEL: 
E62
C33
J21
J38
Document Type: 
Working Paper
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