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Employment and growth in Europe and the US - The role of fiscal policy composition

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  • T. DHONT

    ()

  • F. HEYLEN

    ()

Abstract

We analyze the impact of the composition of fiscal policy on employment and long-run growth. Our theoretical model builds on Barro (JPE, 1990) which we extend by endogenizing the decision to work and by allowing three kinds of government expenditures and three kinds of taxes. The model explains what we basically observe in the data for European countries: relatively high employment and growth in the Nordic countries, but poor employment and low growth in the core countries of the euro area. Our model can also explain employment and growth in the US.

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File URL: http://www.feb.ugent.be/nl/Ondz/wp/Papers/wp_06_420.pdf
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Bibliographic Info

Paper provided by Ghent University, Faculty of Economics and Business Administration in its series Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium with number 06/420.

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Length: 29 pages
Date of creation: Nov 2006
Date of revision:
Handle: RePEc:rug:rugwps:06/420

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Keywords: fiscal policy; taxes; transfers; government spending; employment; endogenous growth;

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  1. Lindbeck, Assar, 1982. "Tax Effects versus Budget Effects on Labor Supply," Economic Inquiry, Western Economic Association International, vol. 20(4), pages 473-89, October.
  2. Giuseppe Nicoletti & Stefano Scarpetta, 2003. "Regulation, Productivity and Growth: OECD Evidence," OECD Economics Department Working Papers 347, OECD Publishing.
  3. Richard B. Freeman & Ronald Schettkat, 2005. "Marketization of household production and the EU-US gap in work," Economic Policy, CEPR & CES & MSH, vol. 20(41), pages 6-50, 01.
  4. T. Dhont & F. Heylen, 2004. "Fiscal Policy, Employment And Growth: Why Is Continental Europe Lagging Behind?," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 04/275, Ghent University, Faculty of Economics and Business Administration.
  5. Edward C. Prescott, 2004. "Why do Americans work so much more than Europeans?," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Jul, pages 2-13.
  6. Giuseppe Nicoletti & Stefano Scarpetta, 2005. "Product Market Reforms and Employment in OECD Countries," OECD Economics Department Working Papers 472, OECD Publishing.
  7. Patrick Honohan & Brendan Walsh, 2002. "Catching Up with the Leaders: The Irish Hare," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 33(1), pages 1-78.
  8. C. Denis & K. Mc Morrow & W. R�ger & R. Veugelers, 2005. "The Lisbon Strategy and the EU's structural productivity problem," European Economy - Economic Papers 221, Directorate General Economic and Monetary Affairs (DG ECFIN), European Commission.
  9. Kneller, Richard & Bleaney, Michael F. & Gemmell, Norman, 1999. "Fiscal policy and growth: evidence from OECD countries," Journal of Public Economics, Elsevier, vol. 74(2), pages 171-190, November.
  10. Sjef Ederveen & Henri de Groot & Richard Nahuis, 2002. "Fertile soil for structural funds? A panel data analysis of the conditional effectiveness of European cohesion policy," CPB Discussion Paper 10, CPB Netherlands Bureau for Economic Policy Analysis.
  11. Lorenzo Pozzi, 2003. "Tax Discounting in a High-debt Economy," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 65(3), pages 261-282, 07.
  12. Michael P. Devereux & Rachel Griffith & Alexander Klemm, 2002. "Corporate income tax reforms and international tax competition," Economic Policy, CEPR & CES & MSH, vol. 17(35), pages 449-495, October.
  13. Karras, Georgios, 1994. "Government Spending and Private Consumption: Some International Evidence," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 26(1), pages 9-22, February.
  14. Peter Lindert, 2004. "Social Spending and Economic Growth," Challenge, M.E. Sharpe, Inc., vol. 47(4), pages 6-16, July.
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Cited by:
  1. Tino Berger & Freddy Heylen, 2011. "Differences in Hours Worked in the OECD: Institutions or Fiscal Policies?," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 43(7), pages 1333-1369, October.
  2. Tim Buyse & Freddy Heylen & Renaat Van de Kerckhove, 2013. "Pension reform, employment by age, and long-run growth," Journal of Population Economics, Springer, vol. 26(2), pages 769-809, April.
  3. R. Schoonackers & F. Heylen, 2011. "Fiscal Policy and TFP in the OECD: A Non-Stationary Panel Approach," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 11/701, Ghent University, Faculty of Economics and Business Administration.
  4. Pier Carlo Padoan, 2010. "Fiscal Policy in the Crisis: Impact, Sustainability, and Long-Term Implications," Working Papers id:3036, eSocialSciences.
  5. T. Buyse & F. Heylen, 2012. "Leaving the empirical (battle)ground: Output and welfare effects of fiscal consolidation in general equilibrium," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 12/826, Ghent University, Faculty of Economics and Business Administration.
  6. Heylen Freddy & Van de Kerckhove Renaat, 2013. "Employment by age, education, and economic growth: effects of fiscal policy composition in general equilibrium," The B.E. Journal of Macroeconomics, De Gruyter, vol. 13(1), pages 55, October.
  7. Renaat Van de Kerckhove & Freddy Heylen & Tim Buyse, 2011. "Pension reform, employment by age, and long-run growth in OECD countries," 2011 Meeting Papers 736, Society for Economic Dynamics.
  8. T. Buyse & F. Heylen & R. Van De Kerckhove, 2012. "Pension reform in an OLG model with heterogeneous abilities," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 12/810, Ghent University, Faculty of Economics and Business Administration.

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