Budgetary Policy and Unemployment Dynamics
AbstractWe consider a dynamic general equilibrium model with collective wage bargaining and investigate how unemployment dynamics are affected by two types of budgetary policies. In line with traditional reasoning, a balanced-budget rule amplifies fluctuations in the short run, whereas an unbalanced-budget policy dampens them. However, the latter policy strengthens unemployment persistence by its adverse impact on growth, and may even destabilize the adjustment path. If this is the case, a future fiscal consolidation is needed which further raises unemployment. These results are consistent with empirical evidence on a positive cross-country relationship between government borrowing and unemployment persistence.
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Bibliographic InfoPaper provided by Royal Economic Society in its series Royal Economic Society Annual Conference 2002 with number 108.
Date of creation: 29 Aug 2002
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Other versions of this item:
- Leo Kaas & Leopold von Thadden, 2001. "Budgetary Policy and Unemployment Dynamics," Vienna Economics Papers 0104, University of Vienna, Department of Economics.
- von Thadden, Leopold & Kaas, Leo, 2001. "Budgetary Policy and Unemployment Dynamics," Discussion Paper Series 1: Economic Studies 2001,07, Deutsche Bundesbank, Research Centre.
- E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
- H62 - Public Economics - - National Budget, Deficit, and Debt - - - Deficit; Surplus
- E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution
This paper has been announced in the following NEP Reports:
- NEP-ALL-2002-07-08 (All new papers)
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- Leo Kaas & Leopold von Thadden, 2003.
"Unemployment, Factor Substitution and Capital Formation,"
German Economic Review,
Verein für Socialpolitik, vol. 4, pages 475-495, November.
- Kaas, Leo & von Thadden, Leopold, 2001. "Unemployment, Factor Substitution, and Capital Formation," Discussion Paper Series 1: Economic Studies 2001,01, Deutsche Bundesbank, Research Centre.
- Leo Kaas & Leopold von Thadden, 2001. "Unemployment, Factor Substitution, and Capital Formation," Vienna Economics Papers 0102, University of Vienna, Department of Economics.
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