Unemployment, Partial Insurance, and the Multiplier Effects of Government Spending

Gregory Givens

MPRA Paper from University Library of Munich, Germany

Abstract: I interpret the empirical evidence on government spending multipliers using an equilibrium model of unemployment in which workers are not fully insured against the risk of job loss. Consumption of resources by the government affects aggregate spending along two margins: (i) an intensive margin owing to a fall in household wealth and (ii) an extensive margin that accounts for growth in the working population. At insurance levels below a certain threshold, the positive effects of (ii) dominate the negative effects of (i), leading to multipliers for private consumption and output that exceed zero and one. Similar results appear in a quantitative version of the model scaled to match estimates from micro data on the consumption cost of unemployment.

Keywords: Government Spending Multipliers; Unemployment Insurance; Shirking Models (search for similar items in EconPapers)
JEL-codes: E13 E24 E32 E62 H50 J41 (search for similar items in EconPapers)
Date: 2019-11
New Economics Papers: this item is included in nep-dge, nep-ias, nep-lma and nep-mac
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:96811

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