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Employment by age, education, and economic growth: effects of fiscal policy composition in general equilibrium

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  • Heylen Freddy

    ()

  • Van de Kerckhove Renaat

    (SHERPPA, Ghent University)

Abstract

We build and parameterize a general equilibrium OLG model that explains hours worked by three active generations, education by the young, the retirement decision of older workers, and aggregate per capita growth as functions of the level and structure of taxes and government expenditures. We find that our model’s predictions match the facts remarkably well for all key variables in many OECD countries. We then use the model to investigate the effects of various fiscal policy shocks. To promote employment, especially among older workers, and economic growth, our results strongly prefer labor tax cuts targeted at older workers and higher productive government expenditures financed by a reduction of non-employment benefits and/or higher consumption taxes. We also evaluate the welfare effects for current and future generations of alternative policy changes.

Suggested Citation

  • 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 1-55, October.
  • Handle: RePEc:bpj:bejmac:v:13:y:2013:i:1:p:55:n:7
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    Cited by:

    1. Brecht Boone & Freddy Heylen, 2015. "Cross-country differences in unemployment: fiscal policy,unions and household preferences in general equilibrium," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 15/899, Ghent University, Faculty of Economics and Business Administration.
    2. Willem Devriendt & Freddy Heylen, 2017. "Macroeconomic Effects Of Demographic Change In An Olg Model For A Small Open Economy - The Case Of Belgium -," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 17/931, Ghent University, Faculty of Economics and Business Administration.
    3. Tim Buyse, 2014. "Pensions and fertility: a simple proposal for reform," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 14/888, Ghent University, Faculty of Economics and Business Administration.
    4. Freddy Heylen & Renaat Van de Kerckhove, 2014. "Heterogeneous ability and the effects of fiscal policy on employment, income and welfare in general equilibrium," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 14/898, Ghent University, Faculty of Economics and Business Administration.
    5. Freddy Heylen & Pieter Van Rymenant & Brecht Boone & Tim Buyse, 2016. "On The Possibility And Driving Forces Of Secular Stagnation - A General Equilibrium Analysis Applied To Belgium -," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 16/919, Ghent University, Faculty of Economics and Business Administration.
    6. Gerdie Everaert & Freddy Heylen & Ruben Schoonackers, 2015. "Fiscal policy and TFP in the OECD: measuring direct and indirect effects," Empirical Economics, Springer, vol. 49(2), pages 605-640, September.
    7. Zheng, Liping & Severe, Sean, 2016. "Teaching the macroeconomic effects of tax cuts with a quasi-experiment," Economic Analysis and Policy, Elsevier, vol. 51(C), pages 55-65.

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