UNEMPLOYMENT, PARTIAL INSURANCE, AND THE MULTIPLIER EFFECTS OF GOVERNMENT SPENDING

Gregory Givens

International Economic Review, 2022, vol. 63, issue 2, 571-599

Abstract: I interpret evidence on government spending multipliers using a model in which workers are not fully insured against job loss. Government consumption affects aggregate spending along two margins : (i) an intensive margin owing to a fall in household wealth and (ii) an extensive margin that accounts for growth in the workforce. At insurance levels below a certain threshold, the positive effects of (ii) dominate the negative effects of (i), leading to multipliers for private consumption and output that exceed zero and one. Similar results appear in a quantitative model scaled to match microestimates on the consumption cost of unemployment.

Date: 2022
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https://doi.org/10.1111/iere.12560

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Working Paper: Unemployment, Partial Insurance, and the Multiplier Effects of Government Spending (2019)
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