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Externality in labor supply and government spending

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

Abstract

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.

Suggested Citation

  • Fève, Patrick & Matheron, Julien & Sahuc, Jean-Guillaume, 2011. "Externality in labor supply and government spending," Economics Letters, Elsevier, vol. 112(3), pages 273-276, September.
    • Handle: RePEc:eee:ecolet:v:112:y:2011:i:3:p:273-276
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    1. Escobar-Posada, Rolando A. & Monteiro, Goncalo, 2017. "Optimal tax policy in the presence of productive, consumption, and leisure externalities," Economics Letters, Elsevier, vol. 152(C), pages 62-65.
    2. Patrick Fève & Jean-Guillaume Sahuc, 2015. "On the size of the government spending multiplier in the euro area," Oxford Economic Papers, Oxford University Press, vol. 67(3), pages 531-552.
    3. Eric M. Leeper & Nora Traum & Todd B. Walker, 2015. "Clearing Up the Fiscal Multiplier Morass: Prior and Posterior Analysis," NBER Working Papers 21433, National Bureau of Economic Research, Inc.
    4. Eric M. Leeper & Nora Traum & Todd B. Walker, 2017. "Clearing Up the Fiscal Multiplier Morass," American Economic Review, American Economic Association, vol. 107(8), pages 2409-2454, August.
    5. Huang, Kevin X.D. & Liu, Fengqi & Meng, Qinglai & Xue, Jianpo, 2022. "Keeping up with the Joneses and the consumption response to government spending," Economics Letters, Elsevier, vol. 220(C).

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