Fiscal Shocks in an Efficiency Wage Model

Craig Burnside, Martin Eichenbaum and Jonas Fisher

No 7515, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: This paper analyzes the ability of a general equilibrium efficiency wage model to account for the estimated response of hours worked and of real wages to a fiscal policy shock. Our key finding is that the model cannot do so unless we make the counterfactual assumption that marginal tax rates are constant. The model shares the strengths and weaknesses of high labor supply elasticity Real Business Cycle models. In particular it can account for the conditional volatility of real wages and hours worked. But it cannot account for the temporal pattern of how these variables respond to a fiscal policy shock and generates a counterfactual negative conditional correlation between government purchases and hours worked.

JEL-codes: E1 E6 (search for similar items in EconPapers)
Date: 2000-01
New Economics Papers: this item is included in nep-dge and nep-pub
Note: EFG ME
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Citations: View citations in EconPapers (11)

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Working Paper: Fiscal shocks in an efficiency wage model (1999)
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