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Optimal Fiscal Policy with Rationing in the Labor Market


  • Gorostiaga, A.


This paper characterizes the optimal fiscal policy when it is assumed that there exists a minimum wage below which no worker can be hired. The rigidity due to the minimum wage legislation can lead to equilibria in which the supply side of the labor market is rationed. One of the main results of the paper is that allocations in which the worker is involuntarily unemployed can be found to be optimal. The main conclusion with respect to the stabilizing properties of the optimal policy is that it should not be used to offset the negative effects of the cycle in the economy.

Suggested Citation

  • Gorostiaga, A., 1999. "Optimal Fiscal Policy with Rationing in the Labor Market," Papers 9908, Centro de Estudios Monetarios Y Financieros-.
  • Handle: RePEc:fth:cemfdt:9908

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    References listed on IDEAS

    1. Becker, Gary S & Lewis, H Gregg, 1973. "On the Interaction between the Quantity and Quality of Children," Journal of Political Economy, University of Chicago Press, vol. 81(2), pages 279-288, Part II, .
    2. Macunovich, D.J., 1996. "Relative Income and Price of Time: Exploring their effcts on U.S. Fertility and Female Labor Force Participation, 1963-1993," Department of Economics Working Papers 174, Department of Economics, Williams College.
    3. McDonald, John, 1983. "The emergence of countercyclical US fertility: A reassessment of the evidence," Journal of Macroeconomics, Elsevier, vol. 5(4), pages 421-436.
    4. Ermisch, John F, 1988. "Purchased Child Care, Optimal Family Size and Mother's Employment," CEPR Discussion Papers 238, C.E.P.R. Discussion Papers.
    5. Joseph Hotz, V. & Klerman, Jacob Alex & Willis, Robert J., 1993. "The economics of fertility in developed countries," Handbook of Population and Family Economics,in: M. R. Rosenzweig & Stark, O. (ed.), Handbook of Population and Family Economics, edition 1, volume 1, chapter 7, pages 275-347 Elsevier.
    6. Gary S. Becker, 1960. "An Economic Analysis of Fertility," NBER Chapters,in: Demographic and Economic Change in Developed Countries, pages 209-240 National Bureau of Economic Research, Inc.
    7. David M. Blau, 1992. "The Child Care Labor Market," Journal of Human Resources, University of Wisconsin Press, vol. 27(1), pages 9-39.
    8. Diane J. Macunovich, 1995. "The Butz-Ward Fertility Model in the Light of More Recent Data," Journal of Human Resources, University of Wisconsin Press, vol. 30(2), pages 229-255.
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    More about this item



    JEL classification:

    • J30 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - General
    • H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy


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