Regional Unemployment Disparities: Can Fiscal Policy Help?

Nicolaas Groenewold () and A.J. Hagger
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Nicolaas Groenewold: University of Western Australia
A.J. Hagger: University of Tasmania

Australian Journal of Labour Economics (AJLE), 2004, vol. 7, issue 1, 13-37

Abstract: Regional unemployment disparities are widely observed, appear to persist through time and are often a reason for concern on the part of both regional and national governments. This paper constructs a small two-region general-equilibrium model and uses it to assess the effectiveness of traditional fiscal policy in combating regional unemployment disparities. The model is based on optimising behaviour of households and firms and incorporates inter-regional migration. It is calibrated using data for the Australian states and then simulated to evaluate the effects of expenditure changes by both regional and federal governments. In particular, we consider (i) a rise in federal government spending in one region, (ii) a rise in regional government spending, (iii) a policy of ‘unlocking the forests’ in which a regional government increases the availability of regional natural resources, and (iv) a general increase in federal government spending. The results are often surprising – only the fourth policy reduces unemployment in the high-unemployment region and all policies exacerbate the disparity.

Keywords: Mobility; Unemployment; and Vacancies: General Mobility; Unemployment; and Vacancies: Public Policy (Employment Services) General Equilibrium and Welfare Economic Analysis of Regional Economies (search for similar items in EconPapers)
JEL-codes: J60 J68 R13 (search for similar items in EconPapers)
Date: 2004
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