Endogenous growth, skill obsolescence and fiscal multipliers

Wolfgang Lechthaler and Mewael F. Tesfaselassie

No 2184, Kiel Working Papers from Kiel Institute for the World Economy

Abstract: We analyze the effects of government spending in a New-Keynesian model with search and matching frictions featuring endogenous growth through learning-by-doing and skill loss from long-term unemployment. We show that medium-run and long-run output and unemployment multipliers are much larger compared to the standard model that abstracts from endogenous growth and skill loss. In our model the aggregate effect of a temporary fiscal stimulus is amplified via the skill loss channel through lower training costs. Via the learning-by-doing channel, it leads to hysteresis in human capital accumulation and thereby output. These results hold for alternative forms of fiscal financing (lump-sum tax, distortionary tax and government debt) as well as alternative labor market institutions (US and Europe).

Keywords: Sovereign default; debt restructuring; international financial architecture; creditor Coordination (search for similar items in EconPapers)
JEL-codes: E24 E52 (search for similar items in EconPapers)
Date: 2021
New Economics Papers: this item is included in nep-dge and nep-mac
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:ifwkwp:2184

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