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Budgetary policy and unemployment dynamics in an olg model with collective bargaining

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  • Leo Kaas
  • Leopold Thadden
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Abstract

We consider a dynamic general equilibrium model with capital accumulation and collective wage bargaining and investigate how unemployment responds to structural shocks under two stylised budgetary policies. Under balanced budgets, tax adjustments lead to higher unemployment on impact but enable a quick recovery of employment. By contrast, unbalanced budgets mitigate unemployment effects on impact but dynamics are more persistent due to weaker capital accumulation and future fiscal consolidations. These results are consistent with empirical evidence on a positive cross-country relationship between government borrowing and unemployment persistence. Copyright 2004 Royal Economic Society.

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Bibliographic Info

Article provided by Royal Economic Society in its journal The Economic Journal.

Volume (Year): 114 (2004)
Issue (Month): 498 (October)
Pages: 867-889

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Handle: RePEc:ecj:econjl:v:114:y:2004:i:498:p:867-889

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Cited by:
  1. Erkki Koskela & Leopold von Thadden, 2008. "Optimal Factor Taxation under Wage Bargaining: A Dynamic Perspective," German Economic Review, Verein für Socialpolitik, vol. 9, pages 135-159, 05.
  2. Yusuke Kinai, 2011. "Design of a Social Security System: Pension System vs. Unemployment Insurance," Discussion Papers in Economics and Business 11-12, Osaka University, Graduate School of Economics and Osaka School of International Public Policy (OSIPP).
  3. Jörg Lingens & Klaus Wälde, 2006. "Pareto-Improving Unemployment Policies," CESifo Working Paper Series 1807, CESifo Group Munich.
  4. Philippe Michel & Leopold von Thadden & Jean-Piere Vidal, 2005. "Debt stabilizing fiscal rules," Computing in Economics and Finance 2005 349, Society for Computational Economics.
  5. Tetsuo Ono, 2007. "Unemployment dynamics in an OLG economy with public pensions," Economic Theory, Springer, vol. 33(3), pages 549-577, December.
  6. Tetsuo Ono, 2010. "Growth and unemployment in an OLG economy with public pensions," Journal of Population Economics, Springer, vol. 23(2), pages 737-767, March.
  7. Lingens, Jorg, 2007. "Unions, wage setting, and economic growth," Economic Modelling, Elsevier, vol. 24(1), pages 167-188, January.
  8. Angelopoulos, Konstantinos & Jiang, Wei & Malley, James R., 2013. "Tax reforms under market distortions in product and labour markets," European Economic Review, Elsevier, vol. 61(C), pages 28-42.
  9. Vesna Stavrevska, 2011. "The efficiency wages perspective to wage rigidity in the open economy: a survey," International Journal of Manpower, Emerald Group Publishing, vol. 32(3), pages 273-299, July.

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