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Fiscal Policy and Labor Markets at Times of Public Debt

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  • Bertola, Giuseppe

Abstract

This paper explores the empirical relevance of public debt accumulation for labor market institutions and outcomes. In theory, since debt service obligations act as a constraint on policy choices, past debt accumulation and current interest rates should influence reform incentives and labor market performance. Empirically, employment and unemployment rates are strongly associated with debt stock and debt service indicators over five-year periods along 1980-2000 public debt and interest-rate stabilization cycles. Significant and sensible relationships are apparent between debt service, interacted with country-specific policy indicators, and labor market policy changes. While only further data and research may disentangle the force that jointly shape public finance and labor market developments, past evidence suggests that aggregate fiscal policy reactions to the 2008-09 crisis will have persistent labor market implications.

Suggested Citation

  • Bertola, Giuseppe, 2010. "Fiscal Policy and Labor Markets at Times of Public Debt," CEPR Discussion Papers 8037, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:8037
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    References listed on IDEAS

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    1. Bertola, Giuseppe & Lo Prete, Anna, 2010. "Whence Policy? Government Policies, Finance, and Economic Integration," CEPR Discussion Papers 7820, C.E.P.R. Discussion Papers.
    2. Ansgar Belke & Bernhard Herz & Lukas Vogel, 2007. "Reforms, Exchange Rates and Monetary Commitment: A Panel Analysis for OECD Countries," Open Economies Review, Springer, vol. 18(3), pages 369-388, July.
    3. Francesco Daveri & Guido Tabellini, 2000. "Unemployment, growth and taxation in industrial countries," Economic Policy, CEPR;CES;MSH, vol. 15(30), pages 47-104, April.
    4. Carmen M. Reinhart & Kenneth S. Rogoff, 2010. "Growth in a Time of Debt," American Economic Review, American Economic Association, vol. 100(2), pages 573-578, May.
    5. Emanuele Bacchiocchi & Elisa Borghi & Alessandro Missale, 2011. "Public Investment under Fiscal Constraints," Fiscal Studies, Institute for Fiscal Studies, vol. 32(1), pages 11-42, March.
    6. Athanasios Tagkalakis, 2009. "Fiscal adjustments: do labor and product market institutions matter?," Public Choice, Springer, vol. 139(3), pages 389-411, June.
    7. Missale, Alessandro, 1999. "Public Debt Management," OUP Catalogue, Oxford University Press, number 9780198290858.
    8. Chryssi Giannitsarou & Andrew Scott, 2008. "Inflation Implications of Rising Government Debt," NBER Chapters,in: NBER International Seminar on Macroeconomics 2006, pages 393-442 National Bureau of Economic Research, Inc.
    9. Sebastian Hauptmeier & Martin Heipertz & Ludger Schuknecht, 2007. "Expenditure Reform in Industrialised Countries: A Case-Study Approach," Fiscal Studies, Institute for Fiscal Studies, vol. 28(3), pages 293-342, September.
    10. Stéphanie Guichard & Mike Kennedy & Eckhard Wurzel & Christophe André, 2007. "What Promotes Fiscal Consolidation: OECD Country Experiences," OECD Economics Department Working Papers 553, OECD Publishing.
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    Citations

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    Cited by:

    1. Steinar Holden & Victoria Sparrman, 2011. "Do Government Purchases Affect Unemployment?," CESifo Working Paper Series 3482, CESifo Group Munich.
    2. Samuel Bentolila & Juan Dolado & Juan Jimeno, 2012. "Reforming an insider-outsider labor market: the Spanish experience," IZA Journal of European Labor Studies, Springer;Forschungsinstitut zur Zukunft der Arbeit GmbH (IZA), vol. 1(1), pages 1-29, December.

    More about this item

    Keywords

    Debt sustainability; Inequality; Labor market regulation;

    JEL classification:

    • H60 - Public Economics - - National Budget, Deficit, and Debt - - - General
    • J08 - Labor and Demographic Economics - - General - - - Labor Economics Policies

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