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Balanced-Budget Rules and Indeterminacy of the Equilibrium Unemployment Rate


  • Rocheteau, Guillaume


This article examines a new case of indeterminacy of the equilibrium unemployment rate due to the financing of government expenditure. Under a balanced-budget rule, the existence of multiple equilibria is a generic property of the matching model of equilibrium unemployment, equilibria are Pareto-ranked, and endogenous cycles occur for some values of the parameters. Government can lead the economy to a high equilibrium by fixing the tax level and then matching its expenditure with its receipts. Copyright 1999 by Royal Economic Society.

Suggested Citation

  • Rocheteau, Guillaume, 1999. "Balanced-Budget Rules and Indeterminacy of the Equilibrium Unemployment Rate," Oxford Economic Papers, Oxford University Press, vol. 51(3), pages 399-409, July.
  • Handle: RePEc:oup:oxecpp:v:51:y:1999:i:3:p:399-409

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    References listed on IDEAS

    1. John R. Baldwin & Paul K. Gorecki, 1990. "Firm Entry and Exit in the Canadian Manufacturing Sector," Working Papers 767, Queen's University, Department of Economics.
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    Cited by:

    1. Raurich, Xavier & Sala, Hector & Sorolla, Valeri, 2006. "Unemployment, Growth, And Fiscal Policy: New Insights On The Hysteresis Hypothesis," Macroeconomic Dynamics, Cambridge University Press, vol. 10(03), pages 285-316, June.
    2. Chang, Juin-jen & Shaw, Ming-fu & Lai, Ching-chong, 2007. "A "Managerial" trade union and economic growth," European Economic Review, Elsevier, vol. 51(2), pages 365-384, February.
    3. Cahuc, Pierre & Malherbet, Franck, 2004. "Unemployment compensation finance and labor market rigidity," Journal of Public Economics, Elsevier, vol. 88(3-4), pages 481-501, March.
    4. Zenou, Yves, 2008. "Job search and mobility in developing countries. Theory and policy implications," Journal of Development Economics, Elsevier, vol. 86(2), pages 336-355, June.
    5. L'Haridon, Olivier & Malherbet, Franck, 2002. "Unemployment Compensation Finance and Aggregate Employment Fluctuations," CEPR Discussion Papers 3614, C.E.P.R. Discussion Papers.
    6. L'Haridon, Olivier & Malherbet, Franck, 2009. "Employment protection reform in search economies," European Economic Review, Elsevier, vol. 53(3), pages 255-273, April.
    7. James W. Boudreau, 2008. "Sequential Pre-Marital Investment Games: Implications for Unemployment," Working papers 2008-45, University of Connecticut, Department of Economics.
    8. Koskela, Erkki & Puhakka, Mikko, 2007. "Stability and Dynamics in an Overlapping Generations Economy with Flexible Wage Negotiations," IZA Discussion Papers 3246, Institute for the Study of Labor (IZA).
    9. Pedro, Gomis-Porqueras, 2016. "Fiscal Requirements for Price Stability in Economies with Private Provision of Liquidity and Unemployment," MPRA Paper 75113, University Library of Munich, Germany.
    10. Delacroix, Alain, 2006. "A multisectorial matching model of unions," Journal of Monetary Economics, Elsevier, vol. 53(3), pages 573-596, April.
    11. Rocheteau, Guillaume, 2002. "Working time regulation in a search economy with worker moral hazard," Journal of Public Economics, Elsevier, vol. 84(3), pages 387-425, June.
    12. Bruno, VAN DER LINDEN, 2003. "Unemployment insurance and training in an equilibrium matching model with heterogeneous agents," Discussion Papers (IRES - Institut de Recherches Economiques et Sociales) 2003001, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).
    13. Zenou, Yves, 2009. "Urban search models under high-relocation costs. Theory and application to spatial mismatch," Labour Economics, Elsevier, vol. 16(5), pages 534-546, October.
    14. Olivier l'Haridon, 2005. "Financement des politiques du marché du travail et protection de l'emploi," Économie et Prévision, Programme National Persée, vol. 168(2), pages 43-62.
    15. Salvador Ortigueira, 2013. "The Rise and Fall of Centralized Wage Bargaining," Scandinavian Journal of Economics, Wiley Blackwell, vol. 115(3), pages 825-855, July.
    16. Ronald Bachmann, 2005. "Skill mismatch in equilibrium unemployment," SFB 649 Discussion Papers SFB649DP2005-034, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany, revised Aug 2005.
    17. Sébastien Pommier, 2004. "Évolutions et asymétries des règles européennes de politique budgétaire et mise en oeuvre du Pacte de stabilité," Économie et Prévision, Programme National Persée, vol. 162(1), pages 95-109.
    18. Guillaume Rocheteau, 1999. "Can an Unemployment Insurance System Generate Multiple Natural Rates?," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 6(3), pages 379-387, August.

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