The Government Wage Bill and Private Activity

Dimitrios Bermperoglou, Evi Pappa and Eugenia Vella

Cahiers de Recherches Economiques du Département d'économie from Université de Lausanne, Faculté des HEC, Département d’économie

Abstract: We estimate the macroeconomic effects of public wage expenditures in U.S. data by identifying shocks to public employment and public wages using sign restrictions. Aggregate public wage bill shocks induce typically insignifi?cant effects. Disaggregating by government level reveals that public employment shocks are mildly expansionary at the federal level and strongly expansionary at the state and local level by crowding in private consumption and increasing labor force participation and private-sector employment.Similarly, state and local government wage shocks lead to increases in consumption and output, while shocks to federal government wages induce signifi?cant contractionary effects.In a stylized DSGE model we show that the degree of complementarity between public and private goods in the consumption bundle is key for explaining the observed heterogeneity.

Keywords: Matching; government wage bill, fiscal multipliers, VARs, sign restrictions, DSGE model, search and matching frictions (search for similar items in EconPapers)
JEL-codes: C22 E12 E32 E62 (search for similar items in EconPapers)
Pages: 55 pp.
Date: 2016-12
New Economics Papers: this item is included in nep-dge, nep-lab and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (13)

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Journal Article: The government wage bill and private activity (2017)
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Persistent link: https://EconPapers.repec.org/RePEc:lau:crdeep:16.24

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