Public Spending, Market Imperfections, and Unemployment

Donatella Gatti

Eastern Economic Journal, 2009, vol. 35, issue 4, 452-461

Abstract: This paper proposes a generalized wage-setting/price-setting model studying the impact of public spending on employment, in the presence of imperfect competition in labor and product markets. Public spending is shown to affect firms’ profit margins and firms’ labor demand schedules. The model highlights a new channel by which fiscal policy can improve employment. By reducing firms’ mark-up, public spending helps countering the adverse effects of market power in imperfectly competitive goods markets.

Date: 2009
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Working Paper: Public Spending, Market Imperfections, and Unemployment (2009)
Working Paper: Public Spending, Market Imperfections, and Unemployment (2009)
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