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Externality in labor supply and government spending

  • Fève, Patrick
  • Matheron, Julien
  • Sahuc, Jean-Guillaume

Standard business cycle models face difficulties generating (i) government spending multipliers exceeding unity and (ii) stabilizing effects of government size. Using a simple model with externality in labor supply, we show that a sufficient degree of complementarity between aggregate and private labor supplies is key to reproducing these stylized facts.

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Article provided by Elsevier in its journal Economics Letters.

Volume (Year): 112 (2011)
Issue (Month): 3 (September)
Pages: 273-276

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Handle: RePEc:eee:ecolet:v:112:y:2011:i:3:p:273-276
Contact details of provider: Web page: http://www.elsevier.com/locate/ecolet

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  1. Benhabib, J. & Farmer, R.E.A., 1999. "The Monetary Transmission Mechanism," Economics Working Papers eco99/35, European University Institute.
  2. Azariadis, Costas & Chen, Been-Lon & Lu, Chia-Hui & Wang, Yin-Chi, 2013. "A two-sector model of endogenous growth with leisure externalities," Journal of Economic Theory, Elsevier, vol. 148(2), pages 843-857.
  3. Linnemann, Ludger & Schabert, Andreas, 2004. "Can fiscal spending stimulate private consumption?," Economics Letters, Elsevier, vol. 82(2), pages 173-179, February.
  4. Jordi Galí & J. David López-Salido & Javier Vallés, 2005. "Understanding the Effects of Government Spending on Consumption," NBER Working Papers 11578, National Bureau of Economic Research, Inc.
  5. Rafael Domenech & Javier Andres & Antonio Fatas, 2006. "The Stabilizing Role of Government Size," Working Papers 0603, International Economics Institute, University of Valencia, revised Jan 2007.
  6. Alberto F. Alesina & Edward L. Glaeser & Bruce Sacerdote, 2006. "Work and Leisure in the U.S. and Europe: Why So Different?," NBER Chapters, in: NBER Macroeconomics Annual 2005, Volume 20, pages 1-100 National Bureau of Economic Research, Inc.
  7. Fatás, Antonio & Mihov, Ilian, 1999. "Government Size and Automatic Stabilizers: International and Intranational Evidence," CEPR Discussion Papers 2259, C.E.P.R. Discussion Papers.
  8. King, R.G. & Baxter, M., 1990. "Fiscal Policy In General Equilibrium," RCER Working Papers 244, University of Rochester - Center for Economic Research (RCER).
  9. Gali, Jordi, 1994. "Government size and macroeconomic stability," European Economic Review, Elsevier, vol. 38(1), pages 117-132, January.
  10. Olivier Blanchard & Roberto Perotti, 1999. "An Empirical Characterization of the Dynamic Effects of Changes in Government Spending and Taxes on Output," NBER Working Papers 7269, National Bureau of Economic Research, Inc.
  11. Daniel S. Hamermesh, 2002. "Timing, togetherness and time windfalls," Journal of Population Economics, Springer, vol. 15(4), pages 601-623.
  12. Ganelli, Giovanni & Tervala, Juha, 2009. "Can government spending increase private consumption? The role of complementarity," Economics Letters, Elsevier, vol. 103(1), pages 5-7, April.
  13. repec:fth:starer:9613 is not listed on IDEAS
  14. repec:fiu:wpaper:0609 is not listed on IDEAS
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