A Theory of Countercyclical Government Multiplier

Pascal Michaillat

American Economic Journal: Macroeconomics, 2014, vol. 6, issue 1, 190-217

Abstract: I develop a New Keynesian model in which a type of government multiplier doubles when unemployment rises from 5 percent to 8 percent. This multiplier indicates the additional number of workers employed when one worker is hired in the public sector. Graphically, in equilibrium, an upward-sloping quasi-labor supply intersects a downward-sloping labor demand in a (employment, labor market tightness) plane. Increasing public employment stimulates labor demand, which increases tightness and therefore crowds out private employment. Critically, the quasi-labor supply is convex. Hence, when labor demand is depressed and unemployment is high, the increase in tightness and resulting crowding-out are small.

JEL-codes: E12 E24 E32 E62 (search for similar items in EconPapers)
Date: 2014
Note: DOI: 10.1257/mac.6.1.190
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (113)

Downloads: (external link)
http://www.aeaweb.org/articles.php?doi=10.1257/mac.6.1.190 (application/pdf)
http://www.aeaweb.org/aej/mac/data/0601/2012-0220_data.zip (application/zip)
http://www.aeaweb.org/aej/mac/ds/0601/2012-0220_ds.zip (application/zip)
Access to full text is restricted to AEA members and institutional subscribers.

Related works:
Working Paper: A theory of countercyclical government multiplier (2014)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:aea:aejmac:v:6:y:2014:i:1:p:190-217

Ordering information: This journal article can be ordered from
https://www.aeaweb.org/journals/subscriptions

Access Statistics for this article

American Economic Journal: Macroeconomics is currently edited by Simon Gilchrist

More articles in American Economic Journal: Macroeconomics from American Economic Association Contact information at EDIRC.
Bibliographic data for series maintained by Michael P. Albert ().