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Fiscal Calculus and the Labor Market

Listed author(s):
  • Campolmi Alessia

    ()

    (Central European University and Magyar Nemzeti Bank)

  • Faia Ester

    ()

    (Goethe University Frankfurt)

  • Winkler Roland

    ()

    (TU Dortmund University)

The endorsement of expansionary fiscal packages has often been based on the idea that large multipliers can counteract rising and persistent unemployment. We explore the effectiveness of fiscal stimuli in a model with matching frictions and endogenous participation. Results show that hiring subsidies, contrary to increase in government spending, deliver large multipliers, even with distortionary taxation. Those policies increase the incentives to post vacancies, hence employment. Furthermore, by reducing marginal costs they also reduce inflation and increase private consumption.

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Article provided by De Gruyter in its journal The B.E. Journal of Macroeconomics.

Volume (Year): 11 (2011)
Issue (Month): 1 (December)
Pages: 1-27

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Handle: RePEc:bpj:bejmac:v:11:y:2011:i:1:n:38
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