Advanced Search
MyIDEAS: Login to save this paper or follow this series

Fiscal Policy in a Real-Business-Cycle Model with Labor-intensive Government Services and Endogenous Public Sector Wages and Hours

Contents:

Author Info

  • Vasilev, Aleksandar

Abstract

Motivated by the high public employment, and the public wage premia observed in Europe, a Real-Business-Cycle model, calibrated to German data (1970-2007), is set up with a richer government spending side, and an endogenous private-public sector labor choice. To illustrate the e ects of scal policy, two regimes are compared and contrasted to one another - exogenous vs. optimal (Ramsey) policy case. The main ndings from the computational experiments performed in this paper are: (i) The optimal steady-state capital tax rate is zero; (ii) A higher labor tax rate is needed in the Ramsey case to compensate for the loss in capital tax revenue; (iii) Under the optimal policy regime, public sector employment is lower, but government employees receive higher wages; (iv) The benevolent Ramsey planner provides the optimal amount of the public good, substitutes labor for capital in the input mix for public services production, and private output; (v) Government wage bill is smaller, while public investment is three times higher than in the exogenous policy case.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://repo.sire.ac.uk/handle/10943/518
Download Restriction: no

Bibliographic Info

Paper provided by Scottish Institute for Research in Economics (SIRE) in its series SIRE Discussion Papers with number 2013-82.

as in new window
Length:
Date of creation: 2013
Date of revision:
Handle: RePEc:edn:sirdps:518

Contact details of provider:
Postal: 31 Buccleuch Place, EH8 9JT, Edinburgh
Phone: +44(0)1316508361
Fax: +44(0)1316504514
Email:
Web page: http://www.sire.ac.uk
More information through EDIRC

Related research

Keywords: optimal policy; government spending; public employment and wages;

Other versions of this item:

Find related papers by JEL classification:

This paper has been announced in the following NEP Reports:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Debortoli, Davide & Nunes, Ricardo, 2010. "Fiscal policy under loose commitment," Journal of Economic Theory, Elsevier, vol. 145(3), pages 1005-1032, May.
  2. Paul Klein & Per Krusell & José-V�ctor R�os-Rull, 2008. "Time-Consistent Public Policy," Review of Economic Studies, Oxford University Press, vol. 75(3), pages 789-808.
  3. Jim Malley & Apostolis Philippopoulos & Ulrich Woitek, 2005. "Electoral Uncertainty, Fiscal Policy and Macroeconomic Fluctuations," CESifo Working Paper Series 1593, CESifo Group Munich.
  4. Stephanie Schmitt-Grohe & Martin Uribe, 1995. "Balanced-budget rules, distortionary taxes, and aggregate instability," Finance and Economics Discussion Series 95-44, Board of Governors of the Federal Reserve System (U.S.).
  5. David R. Stockman, 2001. "Balanced-Budget Rules: Welfare Loss and Optimal Policies," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 4(2), pages 438-459, July.
  6. Marcus Hagedorn, 2010. "Ramsey Tax Cycles," Review of Economic Studies, Oxford University Press, vol. 77(3), pages 1042-1071.
  7. Thomas F. Cooley & Gary D. Hansen, 1991. "Tax distortions in a neoclassical monetary economy," Discussion Paper / Institute for Empirical Macroeconomics 38, Federal Reserve Bank of Minneapolis.
  8. Schmitt-Grohe, Stephanie & Uribe, Martin, 2004. "Solving dynamic general equilibrium models using a second-order approximation to the policy function," Journal of Economic Dynamics and Control, Elsevier, vol. 28(4), pages 755-775, January.
  9. Alessandro Balestrino, 2006. "Tax Avoidance, Endogenous Social Norms, and the Comparison Income Effect," CESifo Working Paper Series 1758, CESifo Group Munich.
  10. Ana Lamo & Javier J. Pérez & Ludger Schuknecht, 2013. "The cyclicality of consumption, wages and employment of the public sector in the euro area," Applied Economics, Taylor & Francis Journals, vol. 45(12), pages 1551-1569, April.
  11. Gonzalo Fernández-de-Córdoba & Javier Pérez & José Torres, 2012. "Public and private sector wages interactions in a general equilibrium model," Public Choice, Springer, vol. 150(1), pages 309-326, January.
  12. Salvador Ortigueira, 2006. "Markov-Perfect Optimal Taxation," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 9(1), pages 153-178, January.
  13. Ardagna, Silvia, 2007. "Fiscal Policy in Unionized Labor Markets," Scholarly Articles 2580048, Harvard University Department of Economics.
  14. Merz, Monika, 1995. "Search in the labor market and the real business cycle," Journal of Monetary Economics, Elsevier, vol. 36(2), pages 269-300, November.
  15. Martin, Fernando M., 2010. "Markov-perfect capital and labor taxes," Journal of Economic Dynamics and Control, Elsevier, vol. 34(3), pages 503-521, March.
  16. King, Robert G. & Plosser, Charles I. & Rebelo, Sergio T., 1988. "Production, growth and business cycles : I. The basic neoclassical model," Journal of Monetary Economics, Elsevier, vol. 21(2-3), pages 195-232.
  17. Lars Ljungqvist & Thomas J. Sargent, 2004. "Recursive Macroeconomic Theory, 2nd Edition," MIT Press Books, The MIT Press, edition 2, volume 1, number 026212274x, December.
  18. Ardagna, Silvia, 2007. "Fiscal policy in unionized labor markets," Journal of Economic Dynamics and Control, Elsevier, vol. 31(5), pages 1498-1534, May.
  19. King, R.G. & Baxter, M., 1990. "Fiscal Policy In General Equilibrium," RCER Working Papers 244, University of Rochester - Center for Economic Research (RCER).
  20. Judd, Kenneth L., 1985. "Redistributive taxation in a simple perfect foresight model," Journal of Public Economics, Elsevier, vol. 28(1), pages 59-83, October.
  21. Klein, Paul, 2000. "Using the generalized Schur form to solve a multivariate linear rational expectations model," Journal of Economic Dynamics and Control, Elsevier, vol. 24(10), pages 1405-1423, September.
  22. George Economides & Apostolis Philippopoulos & Vangelis Vassilatos, 2011. "Public Providers, versus Private Providers, of Public Goods: A General Equilibrium Study of the Role of the State," CESifo Working Paper Series 3487, CESifo Group Munich.
  23. Craig Burnside & Martin Eichenbaum & Jonas Fisher, 2003. "Fiscal Shocks and Their Consequences," NBER Working Papers 9772, National Bureau of Economic Research, Inc.
  24. Jim Malley & Thomas Moutos, 1992. "Does Government Employment "Crowd-Out" Private Employment?: Evidence from Sweden," Working Papers Series 92/16, University of Stirling, Division of Economics.
  25. Lorenzo Forni & Raffaela Giordano, 2003. "Employment in the Public Sector," CESifo Working Paper Series 1085, CESifo Group Munich.
  26. George Economides & Jim Malley & Apostolis Philippopoulos & Ulrich Woitek, 2003. "Electoral Uncertainty, Fiscal Policies and Growth: Theory and Evidence from Germany, the UK and the US," Working Papers 2003_16, Business School - Economics, University of Glasgow.
  27. Lucas, Robert E, Jr, 1990. "Supply-Side Economics: An Analytical Review," Oxford Economic Papers, Oxford University Press, vol. 42(2), pages 293-316, April.
  28. Gilbert Ghez & Gary S. Becker, 1975. "The Allocation of Time and Goods over the Life Cycle," NBER Books, National Bureau of Economic Research, Inc, number ghez75-1, July.
  29. Ana Lamo & Javier J. Pérez & Ludger Schuknecht, 2008. "Public and private sector wages:comovement and casuality," Economic Working Papers at Centro de Estudios Andaluces E2008/14, Centro de Estudios Andaluces.
  30. Albert Alesina & Stephan Danninger & Massimo Rostagno, 2001. "Redistribution Through Public Employment: The Case of Italy," IMF Staff Papers, Palgrave Macmillan, vol. 48(3), pages 2.
  31. Gregory, Robert G. & Borland, Jeff, 1999. "Recent developments in public sector labor markets," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 53, pages 3573-3630 Elsevier.
  32. Ohanian, Lee E, 1997. "The Macroeconomic Effects of War Finance in the United States: World War II and the Korean War," American Economic Review, American Economic Association, vol. 87(1), pages 23-40, March.
  33. David Carey & Josette Rabesona, 2002. "Tax Ratios on Labour and Capital Income and on Consumption," OECD Economic Studies, OECD Publishing, vol. 2002(2), pages 129-174.
  34. Gilbert Ghez & Gary S. Becker, 1975. "A Theory of the Allocation of Time and Goods Over the Life Cycle," NBER Chapters, in: The Allocation of Time and Goods over the Life Cycle, pages 1-45 National Bureau of Economic Research, Inc.
  35. Chamley, Christophe, 1986. "Optimal Taxation of Capital Income in General Equilibrium with Infinite Lives," Econometrica, Econometric Society, vol. 54(3), pages 607-22, May.
  36. Kydland, Finn E & Prescott, Edward C, 1977. "Rules Rather Than Discretion: The Inconsistency of Optimal Plans," Journal of Political Economy, University of Chicago Press, vol. 85(3), pages 473-91, June.
Full references (including those not matched with items on IDEAS)

Citations

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:edn:sirdps:518. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Gina Reddie).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.