Fiscal Consolidation and Public Wages
Nora Traum () and
Shu-Chun Yang ()
Journal of Money, Credit and Banking, 2021, vol. 53, issue 2-3, 503-533
A New Keynesian model with government production, public compensation, and unemployment is fit to U.S. data to study the effects of public wage reductions. Estimation implies reductions in public wages and government goods purchases have similar effects on total output, and the fiscal balance, yet the former can raise private output slightly, while the latter does not. Exogenous public wage reductions decrease private wages. Model counterfactuals show that sufficiently rigid nominal private wages can reverse the private wage response, as the rigidity dampens the labor reallocation effect from the public to private sector that exerts downward pressure on private wages.
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1) Track citations by RSS feed
Downloads: (external link)
Working Paper: Fiscal Consolidation and Public Wages (2019)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:wly:jmoncb:v:53:y:2021:i:2-3:p:503-533
Access Statistics for this article
Journal of Money, Credit and Banking is currently edited by Robert deYoung, Paul Evans, Pok-Sang Lam and Kenneth D. West
More articles in Journal of Money, Credit and Banking from Blackwell Publishing
Bibliographic data for series maintained by Wiley Content Delivery ().