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Time-Varying Employment Risks, Consumption Composition, and Fiscal Policy

Author

Listed:
  • Kazufumi Yamana

    () (Graduate School of Economics, Hitotsubashi University)

  • Makoto Nirei

    () (Institute of Innovation Research, Hitotsubashi University)

  • Sanjib Sarker

    () (Utah State University)

Abstract

This study examines the response of aggregate consumption to active labor market policies that reduce unemployment. We develop a dynamic general equilibrium model with heterogeneous agents and uninsurable unemployment as well as policy regime shocks to quantify the consumption effects of policy. By implementing numerical experiments using the model, we demonstrate a positive effect on aggregate consumption even when the policy serves as a pure transfer from the employed to the unemployed. The positive effect on consumption results from the reduced precautionary savings of the households who indirectly benefit from the policy by a decreased unemployment hazard in future.

Suggested Citation

  • Kazufumi Yamana & Makoto Nirei & Sanjib Sarker, 2016. "Time-Varying Employment Risks, Consumption Composition, and Fiscal Policy," Economics Bulletin, AccessEcon, vol. 36(2), pages 802-812.
  • Handle: RePEc:ebl:ecbull:eb-15-00712
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    References listed on IDEAS

    as
    1. Edouard Challe & Xavier Ragot, 2011. "Fiscal Policy in a Tractable Liquidity‐Constrained Economy," Economic Journal, Royal Economic Society, vol. 121(551), pages 273-317, March.
    2. S. Rao Aiyagari, 1994. "Uninsured Idiosyncratic Risk and Aggregate Saving," The Quarterly Journal of Economics, Oxford University Press, vol. 109(3), pages 659-684.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Time-varying idiosyncratic risk; unemployment risk; precautionary saving; regime- switching fiscal policy; transfers;

    JEL classification:

    • E2 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment
    • H5 - Public Economics - - National Government Expenditures and Related Policies

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