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Evaluating Labor Market Targeted Fiscal Policies inHigh Unemployment EZ Countries

Elton Beqiraj and Massimiliano Tancioni ()

No 165, Working Papers from University of Rome La Sapienza, Department of Public Economics

Abstract: Two labor market targeted …scal policies, a hiring subsidy and a wage subsidy for new hires of labor, are evaluated, and their macroeconomic e¤ects compared with those of standard …scal instruments. The analyses are based on an extension of a monetary, open economy, search and matching model in which a distinction between the wage negotiated by newly hired workers and incumbents is introduced. The model is estimated with Bayesian techniques using data for high unemployment countries of the EZ periphery (Greece, Ireland, Italy, Portugal and Spain).Posterior simulations show that, the labor market policies are not superior to standard fi…scal expansions in stimulating a timely response of economic activity, and their output and employment-enhanching effects are dominant only in the long term and at the Greece and Portugal estimates. The consideration of a liquiditytrap environment marginally reinforces these results, showing that expansionary policy actions triggering a defl‡ation can be procyclical when the interest rate zero-lower-bound binds.

Keywords: wage and hiring subsidies; newly hired workers; search and matching; fiÂ…scal multiplier; zero lower bound; Bayesian estimation. (search for similar items in EconPapers)
JEL-codes: E62 H25 H30 J20 C11 (search for similar items in EconPapers)
Pages: 53
Date: 2014-06
New Economics Papers: this item is included in nep-dge, nep-lab and nep-mac
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