IDEAS home Printed from https://ideas.repec.org/p/hrv/faseco/2580048.html
   My bibliography  Save this paper

Fiscal Policy in Unionized Labor Markets

Author

Listed:
  • Ardagna, Silvia

Abstract

This paper investigates the effects of fiscal policy on economic activity, public finances, welfare, and income distribution in a dynamic general equilibrium model with a unionized labor market. The paper shows that debt-financed increases of public employment, wages of public sector employees, unemployment benefits, and labor taxes put pressure on unions’ wage claims, leading to higher private sector wages, lower employment, capital, and output. In addition, increases of public employment, public wages and unemployment benefits increase workers’ utility relative to the pre-policy change equilibrium during the transition, but not in the long-run. Instead, workers’ utility decreases at any time horizon when labor taxes increase. Capitalists always benefit from increases in taxes on labor but their welfare decreases when public spending goes up. Finally, the paper investigates the extent to which the way the government balances its budget affects these results.

Suggested Citation

  • Ardagna, Silvia, 2007. "Fiscal Policy in Unionized Labor Markets," Scholarly Articles 2580048, Harvard University Department of Economics.
    • Handle: RePEc:hrv:faseco:2580048
    as

    Download full text from publisher

    File URL: http://dash.harvard.edu/bitstream/handle/1/2580048/Ardagna_FiscalPolicy.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Ludvigson, Sydney, 1996. "The macroeconomic effects of government debt in a stochastic growth model," Journal of Monetary Economics, Elsevier, vol. 38(1), pages 25-45, August.
    2. C. John McDermott & Robert F. Wescott, 1996. "An Empirical Analysis of Fiscal Adjustments," IMF Staff Papers, Palgrave Macmillan, vol. 43(4), pages 725-753, December.
    3. Lorenzo Forni & Raffaela Giordano, 2003. "Employment in the Public Sector," CESifo Working Paper Series 1085, CESifo.
    4. Alesina, Alberto & Perotti, Roberto, 1997. "The Welfare State and Competitiveness," American Economic Review, American Economic Association, vol. 87(5), pages 921-939, December.
    5. Pappa, Evi, 2005. "New-keynesian or RBC transmission? The effects of fiscal shocks in labour markets," LSE Research Online Documents on Economics 524, London School of Economics and Political Science, LSE Library.
    6. Francesco Daveri & Marco Maffezzoli, "undated". "A numerical approach to fiscal policy, unemployment and growth in Europe," Working Papers 155, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
    7. Blanchard, Olivier Jean & Kahn, Charles M, 1980. "The Solution of Linear Difference Models under Rational Expectations," Econometrica, Econometric Society, vol. 48(5), pages 1305-1311, July.
    8. Francesco Zanetti, 2003. "Non-Walrasian Labor Market and the European Business Cycle," Boston College Working Papers in Economics 574, Boston College Department of Economics, revised 20 May 2004.
    9. Albert Alesina & Stephan Danninger & Massimo Rostagno, 2001. "Redistribution Through Public Employment: The Case of Italy," IMF Staff Papers, Palgrave Macmillan, vol. 48(3), pages 1-2.
    10. Rotemberg, Julio J & Woodford, Michael, 1992. "Oligopolistic Pricing and the Effects of Aggregate Demand on Economic Activity," Journal of Political Economy, University of Chicago Press, vol. 100(6), pages 1153-1207, December.
    11. Jordi Galí & J. David López-Salido & Javier Vallés, 2007. "Understanding the Effects of Government Spending on Consumption," Journal of the European Economic Association, MIT Press, vol. 5(1), pages 227-270, March.
    12. Hansen, Gary D., 1985. "Indivisible labor and the business cycle," Journal of Monetary Economics, Elsevier, vol. 16(3), pages 309-327, November.
    13. Mendoza, Enrique G. & Razin, Assaf & Tesar, Linda L., 1994. "Effective tax rates in macroeconomics: Cross-country estimates of tax rates on factor incomes and consumption," Journal of Monetary Economics, Elsevier, vol. 34(3), pages 297-323, December.
    14. Calmfors, Lars & Horn, Henrik, 1986. "Employment Policies and Centralized Wage-Setting," Economica, London School of Economics and Political Science, vol. 53(211), pages 281-302, August.
    15. Francesco Daveri & Guido Tabellini, 2000. "Unemployment, growth and taxation in industrial countries," Economic Policy, CEPR, CESifo, Sciences Po;CES;MSH, vol. 15(30), pages 48-104.
    16. Johannes Hörner & L. Rachel Ngai & Claudia Olivetti, 2007. "Public Enterprises And Labor Market Performance," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 48(2), pages 363-384, May.
    17. Giavazzi, Francesco & Jappelli, Tullio & Pagano, Marco, 2000. "Searching for non-linear effects of fiscal policy: Evidence from industrial and developing countries," European Economic Review, Elsevier, vol. 44(7), pages 1259-1289, June.
    18. Ardagna, Silvia, 2001. "Fiscal Policy Composition, Public Debt, and Economic Activity," Scholarly Articles 2579823, Harvard University Department of Economics.
    19. Dotsey, Michael, 1994. "Some unpleasant supply side arithmetic," Journal of Monetary Economics, Elsevier, vol. 33(3), pages 507-524, June.
    20. Jim Malley & Thomas Moutos, 1992. "Does Government Employment "Crowd-Out" Private Employment?: Evidence from Sweden," Working Papers Series 92/16, University of Stirling, Division of Economics.
    21. Marco Maffezzoli, 2001. "Non-Walrasian Labor Markets and Real Business Cycles," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 4(4), pages 860-892, October.
    22. Jantti, Markus, 1997. "Inequality in Five Countries in the 1980s: The Role of Demographic Shifts, Markets and Government Policies," Economica, London School of Economics and Political Science, vol. 64(255), pages 415-440, August.
    23. Malley, Jim & Moutos, Thomas, 1996. " Does Government Employment "Crowd-Out" Private Employment? Evidence from Sweden," Scandinavian Journal of Economics, Wiley Blackwell, vol. 98(2), pages 289-302, June.
    24. Devereux, Michael B & Head, Allen C & Lapham, Beverly J, 1996. "Monopolistic Competition, Increasing Returns, and the Effects of Government Spending," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 28(2), pages 233-254, May.
    25. Ardagna, Silvia, 2004. "Fiscal Stabilizations: When Do They Work and Why," Scholarly Articles 2580047, Harvard University Department of Economics.
    26. Ardagna, Silvia, 2004. "Fiscal stabilizations: When do they work and why," European Economic Review, Elsevier, vol. 48(5), pages 1047-1074, October.
    27. Barro, Robert J, 1990. "Government Spending in a Simple Model of Endogenous Growth," Journal of Political Economy, University of Chicago Press, vol. 98(5), pages 103-126, October.
    28. Burnside, Craig & Eichenbaum, Martin & Fisher, Jonas D. M., 2004. "Fiscal shocks and their consequences," Journal of Economic Theory, Elsevier, vol. 115(1), pages 89-117, March.
    29. Ohanian, Lee E, 1997. "The Macroeconomic Effects of War Finance in the United States: World War II and the Korean War," American Economic Review, American Economic Association, vol. 87(1), pages 23-40, March.
    30. Finn, Mary G, 1998. "Cyclical Effects of Government's Employment and Goods Purchases," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 39(3), pages 635-657, August.
    31. Rogerson, Richard & Wright, Randall, 1988. "Involuntary unemployment in economies with efficient risk sharing," Journal of Monetary Economics, Elsevier, vol. 22(3), pages 501-515.
    32. Ardagna, Silvia, 2001. "Fiscal Policy Composition, Public Debt, and Economic Activity," Public Choice, Springer, vol. 109(3-4), pages 301-325, December.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Ardagna, Silvia, 2007. "Fiscal policy in unionized labor markets," Journal of Economic Dynamics and Control, Elsevier, vol. 31(5), pages 1498-1534, May.
    2. Alberto Alesina & Silvia Ardagna & Roberto Perotti & Fabio Schiantarelli, 2002. "Fiscal Policy, Profits, and Investment," American Economic Review, American Economic Association, vol. 92(3), pages 571-589, June.
    3. Vasilev, Aleksandar, 2013. "Fiscal policy in a Real-Business-Cycle model with labor-intensive government services and endogenous public sector wages and hours," EconStor Preprints 142338, ZBW - Leibniz Information Centre for Economics.
    4. Dimitris Papageorgiou, 2009. "Macroeconomic Implications of Alternative Tax Regimes: The Case of Greece," Working Papers 97, Bank of Greece.
    5. K Peren Arin & Faik Koray, 2005. "Fiscal Policy and Economic Activity: U.S. Evidence," Macroeconomics 0508024, University Library of Munich, Germany.
    6. Vasilev, Aleksandar, 2013. "Essays on Real Business Cycle Modeling and the Public Sector," EconStor Theses, ZBW - Leibniz Information Centre for Economics, number 130522, July.
    7. Linnemann, Ludger, 2009. "Macroeconomic effects of shocks to public employment," Journal of Macroeconomics, Elsevier, vol. 31(2), pages 252-267, June.
    8. Ardagna, Silvia, 2004. "Fiscal stabilizations: When do they work and why," European Economic Review, Elsevier, vol. 48(5), pages 1047-1074, October.
    9. Papageorgiou, Dimitris, 2012. "Fiscal policy reforms in general equilibrium: The case of Greece," Journal of Macroeconomics, Elsevier, vol. 34(2), pages 504-522.
    10. Roberto Perotti, 2008. "In Search of the Transmission Mechanism of Fiscal Policy," NBER Chapters, in: NBER Macroeconomics Annual 2007, Volume 22, pages 169-226, National Bureau of Economic Research, Inc.
    11. Zanetti, Francesco, 2011. "Labor market institutions and aggregate fluctuations in a search and matching model," European Economic Review, Elsevier, vol. 55(5), pages 644-658, June.
    12. Gonzalo Fernández-de-Córdoba & Javier Pérez & José Torres, 2012. "Public and private sector wages interactions in a general equilibrium model," Public Choice, Springer, vol. 150(1), pages 309-326, January.
    13. Perotti, Roberto & Monacelli, Tommas, 2008. "Fiscal Policy, Wealth Effects and Markups," CEPR Discussion Papers 7099, C.E.P.R. Discussion Papers.
    14. Kim, Hyeongwoo & Shao, Peng & Zhang, Shuwei, 2023. "Policy coordination and the effectiveness of fiscal stimulus," Journal of Macroeconomics, Elsevier, vol. 75(C).
    15. Evi Pappa, 2005. "New Keynesian or RBC Transmission? The Effects of Fiscal Policy in Labor Markets," Working Papers 293, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
    16. Valerie A. Ramey, 2011. "Identifying Government Spending Shocks: It's all in the Timing," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 126(1), pages 1-50.
    17. Pappa, Evi, 2005. "New-Keynesian or RBC Transmission? The Effects of Fiscal Shocks in Labour Markets," CEPR Discussion Papers 5313, C.E.P.R. Discussion Papers.
    18. Michele Cavallo, 2005. "Government employment and the dynamic effects of fiscal policy shocks," Working Paper Series 2005-16, Federal Reserve Bank of San Francisco.
    19. Forni, Lorenzo & Monteforte, Libero & Sessa, Luca, 2009. "The general equilibrium effects of fiscal policy: Estimates for the Euro area," Journal of Public Economics, Elsevier, vol. 93(3-4), pages 559-585, April.
    20. Maria Neicheva, 2006. "Non-Keynesian Effects of Government Expenditure on Output in Bulgaria: An HP Filter Approach," Post-Communist Economies, Taylor & Francis Journals, vol. 18(1), pages 1-12.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:hrv:faseco:2580048. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Office for Scholarly Communication (email available below). General contact details of provider: https://edirc.repec.org/data/deharus.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.