Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/30256
Authors: 
Campolmi, Alessia
Faia, Ester
Winkler, Roland C.
Year of Publication: 
2010
Series/Report no.: 
Kiel Working Paper 1602
Abstract: 
The endorsement of expansionary fiscal packages has often been based on the idea that large multipliers can contrast rising unemployment. Is that really the case? We explore those issues in a New Keynesian model in which unemployment arises because of matching frictions. We compare fiscal packages with different targets (pure demand stimuli versus subsidy to cost of hiring) and of government funding (lump sum taxation versus distortionary taxation). We find that in presence of demand stimuli fiscal multipliers are zero and even turn negative when financed with distortionary taxation. On the other side, in a model with a non-Walrasian labor market, policies aimed at reducing labor wedges, such as cost of hiring, are particularly effective in boosting employment and output.
Subjects: 
Fiscal calculus
taxation
matching frictions
JEL: 
E62
E63
E24
Document Type: 
Working Paper

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