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Fiscal multipliers in a two-sector search and matching model

Konstantinos Angelopoulos, Wei Jiang () and Jim Malley ()

Studies in Economics from School of Economics, University of Kent

Abstract: This paper evaluates the effects of policy interventions on sectoral labour markets and the aggregate economy in a business cycle model with search and matching frictions. We extend the canonical model by including capital-skill complementarity in production, labour markets with skilled and unskilled workers and on-the-job-learning (OJL) within and across skill types. We first find that, the model does a good job at matching the cyclical properties of sectoral employment and the wage-skill premium. We next find that vacancy subsidies for skilled and unskilled jobs lead to output multipliers which are greater than unity with OJL and less than unity without OJL. In contrast, the positive output effects from cutting skilled and unskilled income taxes are close to zero. Finally, we find that the sectoral and aggregate effects of vacancy subsidies do not depend on whether they are financed via public debt or distorting taxes.

Keywords: fiscal multipliers; sectoral labour markets; search and matching (search for similar items in EconPapers)
JEL-codes: E24 E32 J63 J64 J68 (search for similar items in EconPapers)
Date: 2015-01
New Economics Papers: this item is included in nep-dge and nep-mac
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Related works:
Working Paper: Fiscal Multipliers in a Two-Sector Search and Matching Model (2015) Downloads
Working Paper: Fiscal multipliers in a two-sector search and matching model (2015) Downloads
Working Paper: Fiscal multipliers in a two-sector search and matching model (2015) Downloads
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