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Sectoral labor market effects of fiscal spending

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  • Wesselbaum, Dennis

Abstract

This paper studies sectoral effects of fiscal spending. We estimate a New Keynesian model with search and matching frictions and two sectors. Fiscal spending is either wasteful (consumption) or productivity enhancing (investment). Using U.S. data we find significant differences across sectors. Further, we show that government investment rather than consumption shocks are driver of fluctuations in sectoral and aggregate outputs and labor market variables. Finally, government investment shocks are much more effective in stimulating the economy than spending shocks. However, this comes at the cost of an increase in the unemployment rate.

Suggested Citation

  • Wesselbaum, Dennis, 2015. "Sectoral labor market effects of fiscal spending," Structural Change and Economic Dynamics, Elsevier, vol. 34(C), pages 19-35.
    • Handle: RePEc:eee:streco:v:34:y:2015:i:c:p:19-35
    DOI: 10.1016/j.strueco.2015.05.002
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    1. Dennis Wesselbaum, 2019. "Expectation shocks and fiscal rules," International Economics and Economic Policy, Springer, vol. 16(2), pages 357-377, April.

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    More about this item

    Keywords

    Government consumption; Government investment; Search and matching; Sectoral effects;
    All these keywords.

    JEL classification:

    • C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Bayesian Analysis: General
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H5 - Public Economics - - National Government Expenditures and Related Policies

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