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Fiscal Rules And Unemployment

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  • Gehrke, Britta

Abstract

This paper shows how fiscal policy affects unemployment in a New Keynesian model with search and matching frictions and distortionary taxation. The model is estimated using US data that includes labor market flows and distinct fiscal instruments. Several findings stand out. First, unemployment multipliers for spending and consumption tax cuts are substantial, even though output multipliers turn out to be less than one. Second, multipliers for labor tax cuts are small. Third, fiscal rules enhance the positive effects of discretionary fiscal policy. However, these expansionary effects on the multipliers are modest compared to earlier studies.

Suggested Citation

  • Gehrke, Britta, 2019. "Fiscal Rules And Unemployment," Macroeconomic Dynamics, Cambridge University Press, vol. 23(8), pages 3293-3326, December.
    • Handle: RePEc:cup:macdyn:v:23:y:2019:i:8:p:3293-3326_9
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    Cited by:

    1. Ciminelli, Gabriele & Ernst, Ekkehard & Merola, Rossana & Giuliodori, Massimo, 2019. "The composition effects of tax-based consolidation on income inequality," European Journal of Political Economy, Elsevier, vol. 57(C), pages 107-124.

    More about this item

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • J20 - Labor and Demographic Economics - - Demand and Supply of Labor - - - General
    • C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Bayesian Analysis: General

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