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Dynamic fiscal policies and unemployment in a simple endogenous growth model

Stefan Josten ()

International Tax and Public Finance, 2006, vol. 13, issue 6, 701-716

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 higher, the lower are the labour tax rate and the unemployment rate. Constant-flow budget policies are not feasible, while government Ponzi games are feasible only if economic agents have implausibly high savings rates. 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. Copyright Springer Science + Business Media, LLC 2006

Keywords: Unemployment; Public debt; Economic growth; Fiscal policy (search for similar items in EconPapers)
Date: 2006
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