Fiscal policy in a Real-Business-Cycle model with labor-intensive government services and endogenous public sector wages and hours

Aleksandar Vasilev

Working Papers from Business School - Economics, University of Glasgow

Abstract: Motivated by the high public employment, and the public wage premia observed in Europe, a Real-Business-Cycle model, calibrated to German data (1970-2007), is set up with a richer government spending side, and an endogenous private-public sector labor choice. To illustrate the effects of fiscal policy, two regimes are compared and contrasted to one another - exogenous vs. optimal (Ramsey) policy case. The main findings from the computational experiments performed in this paper are: (i) The op- timal steady-state capital tax rate is zero; (ii) A higher labor tax rate is needed in the Ramsey case to compensate for the loss in capital tax revenue; (iii) Under the optimal policy regime, public sector employment is lower, but government employees receive higher wages; (iv) The benevolent Ramsey planner provides the optimal amount of the public good, substitutes labor for capital in the input mix for public services produc- tion, and private output; (v) Government wage bill is smaller, while public investment is three times higher than in the exogenous policy case.

Keywords: optimal policy; government spending; public employment and wages (search for similar items in EconPapers)
JEL-codes: E32 E62 E69 H40 (search for similar items in EconPapers)
Date: 2013-05
New Economics Papers: this item is included in nep-dge, nep-mac, nep-pbe and nep-pub
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
http://www.gla.ac.uk/media/media_294877_en.pdf (application/pdf)

Related works:
Working Paper: Fiscal Policy in a Real-Business-Cycle Model with Labor-intensive Government Services and Endogenous Public Sector Wages and Hours (2013)
Working Paper: Fiscal policy in a Real-Business-Cycle model with labor-intensive government services and endogenous public sector wages and hours (2013)
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:gla:glaewp:2013_18

Access Statistics for this paper

More papers in Working Papers from Business School - Economics, University of Glasgow Contact information at EDIRC.
Bibliographic data for series maintained by Business School Research Team ().