Fiscal Stimulus and Skill Accumulation over the Life Cycle

Laure Simon

Staff Working Papers from Bank of Canada

Abstract: Using micro data from the U.S. Consumer Expenditure Survey and Current Population Survey, I document that government spending shocks affect individuals differently over the life cycle. Young households increase their consumption after an expansionary shock while prime-age households reduce it, regardless of their level of income or debt. Productivity and wages increase significantly for young workers. To rationalize these findings, I develop a parsimonious New Keynesian life-cycle model where young agents accumulate skills on the job through a learning-by-doing process. An increase in government spending raises hours worked, which enhances skill accumulation, particularly among young workers who face a steep learning curve. The ensuing increase in the relative labor demand for young workers boosts their wages, thus stimulating their consumption.

Keywords: Business fluctuations and cycles; Fiscal policy; Productivity (search for similar items in EconPapers)
JEL-codes: D12 D15 E21 E62 J11 J24 (search for similar items in EconPapers)
Pages: 71 pages
Date: 2023-01
New Economics Papers: this item is included in nep-dge and nep-lma
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