Public Consumption and Unemployment

Gylfi Zoega

Scottish Journal of Political Economy, 1997, vol. 44, issue 3, 269-279

Abstract: This paper introduces public consumption—hence the size of the public sector—into an efficiency wage model of the labour market. The effect of a simultaneous rise in taxes and public consumption on unemployment is derived. There arises an unambiguous positive relationship between the size of the public sector and equilibrium unemployment if public and private consumption are substitutes and wages are taxed. The impact of taxes on consumption on unemployment, although in general not equal to zero, is ambiguous.

Date: 1997
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Persistent link: https://EconPapers.repec.org/RePEc:bla:scotjp:v:44:y:1997:i:3:p:269-279

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