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Public Debt and Unemployment Growth: The Need for Fiscal and Monetary Rules. Evidence from OECD Countries (1981-2009)

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  • Silvia Fedeli
  • Francesco Forte

Abstract

We analyse the long run relationship between unemployment rate and deficit-GDP ratio for 19 OECD countries from 1981 to 2009. Based on Westerlund (2007), we find co-integration between the two variables, demonstrating that fiscal deficit policies, in the long, create unemployment and viceversa.This effect is greater for the 13 OECD-European countries, which have a higher share of public expenditure to GDP and a higher natural rate unemployment. These results support the view that constitutional limits to deficit appear favourable to long term employment, particularly if the balance of the budget is obtained limiting the size of Government.

Suggested Citation

  • Silvia Fedeli & Francesco Forte, 2012. "Public Debt and Unemployment Growth: The Need for Fiscal and Monetary Rules. Evidence from OECD Countries (1981-2009)," Economia politica, Società editrice il Mulino, issue 3, pages 409-438.
  • Handle: RePEc:mul:jb33yl:doi:10.1428/38933:y:2012:i:3:p:409-438
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    Cited by:

    1. Martina Helcmanovská & Alena Andrejovská, 2021. "Tax Rates and Tax Revenues in the Context of Tax Competitiveness," JRFM, MDPI, vol. 14(7), pages 1-13, June.

    More about this item

    Keywords

    J.E.L. C33; E24; E62; H62;
    All these keywords.

    JEL classification:

    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H62 - Public Economics - - National Budget, Deficit, and Debt - - - Deficit; Surplus

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