 Fiscal policies, frictional labor market, and endogenous growthJournal of Macroeconomics, 2015, vol. 46, issue C, 315-327 Abstract: This paper considers the spillover effects from public spending, and studies optimal fiscal policies in frictional labor markets. We obtain that the optimal shares of government spending in production and consumption are the same as those in a frictionless labor market under the Hosios condition. However, as higher capital accumulation increases the cost of job creation and maintenance, the optimal tax rate of capital income is positive. In addition, when the labor market is frictional, the marginal benefit of labor is larger than the marginal utility of leisure. Thus, consumption and labor should not be taxed uniformly any more. Our calibration suggests that all of the three tax rates should be positive. Moreover, in the situation in which the Hosios condition does not hold, the shares of public productive spending and public consumption both increase when the worker’s bargaining power is greater than the elasticity of search in the matching function. Keywords: Fiscal policy; Optimal taxation; Externality; Search and matching (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:jmacro:v:46:y:2015:i:c:p:315-327 DOI: 10.1016/j.jmacro.2015.10.006 Access Statistics for this article Journal of Macroeconomics is currently edited by Douglas McMillin and Theodore Palivos More articles in Journal of Macroeconomics from Elsevier |
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