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The Role of Real Wage Rigidity and Unemployment

In: Public Debt and Economic Growth

Author

Listed:
  • Alfred Greiner

    (Bielefeld University)

  • Bettina Fincke

    (Bielefeld University)

Abstract

In this chapter we present an endogenous growth model with public capital, public debt and where real wages are either flexible or rigid due to labor market imperfections. With flexible wages, a balanced budget scenario yields the highest balanced growth rate. Further, simulations suggest that there is a tradeoff between positive growth effects of deficit financed public investment and stability of the model. With real wage rigidities, a balanced budget scenario may yield a lower balanced growth rate compared to permanent public deficits. Further, the trade-off between growth effects of deficit financed investment and stability does not exist.

Suggested Citation

  • Alfred Greiner & Bettina Fincke, 2009. "The Role of Real Wage Rigidity and Unemployment," Dynamic Modeling and Econometrics in Economics and Finance, in: Public Debt and Economic Growth, chapter 0, pages 111-127, Springer.
    • Handle: RePEc:spr:dymchp:978-3-642-01745-2_5
    DOI: 10.1007/978-3-642-01745-2_5
    as

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