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Fiscal stimulus and labor market policies in Europe

Author

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  • Faia, Ester
  • Lechthaler, Wolfgang
  • Merkl, Christian

Abstract

Several contributions have recently assessed the size of fiscal multipliers both in RBC models and in New Keynesian models. This paper computes fiscal multipliers within a labor selection model with turnover costs and Nash bargained wages. We find that demand stimuli yield small multipliers, as they have little impact on hiring and firing decisions. By contrast, hiring subsidies, and short-time work (German “Kurzarbeit”) deliver large multipliers, as they stimulate job creation and employment.

Suggested Citation

  • Faia, Ester & Lechthaler, Wolfgang & Merkl, Christian, 2013. "Fiscal stimulus and labor market policies in Europe," Journal of Economic Dynamics and Control, Elsevier, vol. 37(3), pages 483-499.
    • Handle: RePEc:eee:dyncon:v:37:y:2013:i:3:p:483-499
    DOI: 10.1016/j.jedc.2012.09.004
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    Keywords

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    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H30 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - General
    • J20 - Labor and Demographic Economics - - Demand and Supply of Labor - - - General
    • H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General

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