Fiscal expansions affect unemployment, but they may increase it

Evi Pappa and Brückner, Markus
Authors registered in the RePEc Author Service: Markus Brueckner

No 7766, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: Evidence from structural VARs suggests that the unemployment rate significantly increases following increases in government expenditures in many OECD countries. Results hold for a variety of specifications and identification schemes. Fiscal expansions also tend to increase the participation rate, vacancies, real wages and employment while they do not affect significantly labor market tightness. Existing models have difficulties in generating such responses. We introduce insider and outsider workers and a labor force participation choice into a New Keynesian model with matching frictions and show that calibrated versions of the model can generate the empirical regularities.

Keywords: Insiders-outsiders; Matching frictions; Participation rate; Svar; Unemployment (search for similar items in EconPapers)
JEL-codes: E32 E62 (search for similar items in EconPapers)
Date: 2010-03
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (12)

Downloads: (external link)
https://cepr.org/publications/DP7766 (application/pdf)

Related works:
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:cpr:ceprdp:7766

Ordering information: This working paper can be ordered from
https://cepr.org/publications/DP7766

Access Statistics for this paper

More papers in CEPR Discussion Papers from Centre for Economic Policy Research 33 Great Sutton Street, London EC1V 0DX, UK.
Bibliographic data for series maintained by CEPR ().