Dynamic Fiscal Policies, Unemployment, and Economic Growth

Stefan Dietrich Josten ()
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Stefan Dietrich Josten: Helmut Schmidt University, Hamburg, Postal: Institut fuer Finanzwissenschaft, Fachbereich WOW, Universitaet der Bundewehr Hamburg,, Holstenhofweg 85, D-22043 Hamburg, F. R. G.

No 9/2003, Working Paper from Helmut Schmidt University, Hamburg

Abstract: This paper analyzes the growth and employment effects of dynamic fiscal policies in an overlapping generations model with endogenous growth and imperfect labour markets. With balanced-budget policies, the modelled closed economy grows at a constant rate which is the higher, the lower are the labour tax rate and the unemployment rate. Both government Ponzi games and constant-flow budget policies are shown not to be feasible. Furthermore, while constant-stock fiscal policies are sustainable, an increase in the debt-to-capital ratio is accompanied by higher taxes, a rise in unemployment and lower economic growth.

Keywords: Unemployment; Public debt; Economic growth; Overlapping generations (search for similar items in EconPapers)
JEL-codes: E24 H63 J51 O41 (search for similar items in EconPapers)
Pages: 30 pages
Date: 2003-06
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