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Fiscal Policy Can Raise Both Employment and Productivity

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  • William Scarth
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    Abstract

    According to the conventional wisdom, we face a trade-off between our equity and efficiency objectives. The author challenges this proposition. He shows in a rigorous manner that employment subsidies can indeed lead to lower unemployment and higher productivity growth in a standard economic model. This finding is particularly timely given the announcement by the Canadian government in the November 2005 Economic and Fiscal Update of a Working Income Tax Benefit. The author approvingly notes that this initiative suggests that the government may be starting to appreciate the pro-growth benefits of simultaneously addressing structural unemployment and inequality.

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    File URL: http://www.csls.ca/ipm/11/IPM-11-scarth-e.pdf
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    Bibliographic Info

    Article provided by Centre for the Study of Living Standards in its journal International Productivity Monitor.

    Volume (Year): 11 (2005)
    Issue (Month): (Fall)
    Pages: 39-46

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    Handle: RePEc:sls:ipmsls:v:11:y:2005:5

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    Related research

    Keywords: Productivity; Productivity Growth; Equity; Efficicency; Fiscal Policy; Employment Subsidies; Unemployment; Employment; Working Income Tax Benefit; Economic and Fiscal Update; Canada; Inequality; Structural Unemployment;

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    1. Osberg, L., 1995. "The Equity/Efficiency Trade-Off in Retrospect," Department of Economics at Dalhousie University working papers archive 95-04, Dalhousie, Department of Economics.
    2. N. Gregory Mankiw, 2000. "The Savers-Spenders Theory of Fiscal Policy," NBER Working Papers 7571, National Bureau of Economic Research, Inc.
    3. Lucas, Robert Jr., 1988. "On the mechanics of economic development," Journal of Monetary Economics, Elsevier, vol. 22(1), pages 3-42, July.
    4. Michelle Alexopoulos, 2003. "Growth and unemployment in a shirking efficiency wage model," Canadian Journal of Economics, Canadian Economics Association, vol. 36(3), pages 728-746, August.
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