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A Fiscal Job? An Analysis of Fiscal Policy and the Labor Market

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  • Ms. Elva Bova
  • Ms. Christina Kolerus
  • Mr. Sampawende J Tapsoba

Abstract

This paper examines the impact of fiscal policy on employment through the lenses of Okun’s Law. Looking at the panel of OECD countries over the past three decades, we find that fiscal policy can affect employment beyond the impact it is traditionally assumed to exert through the output multiplier. In particular, this impact is found to be effective for most items of current discretionary expenditure and for corporate income taxes and social security contributions. Okun’s Law is found to be stable under almost all model specifications, but higher spending on subsidies and lower social security contributions can amplify the impact of the output gap on employment gaps.

Suggested Citation

  • Ms. Elva Bova & Ms. Christina Kolerus & Mr. Sampawende J Tapsoba, 2014. "A Fiscal Job? An Analysis of Fiscal Policy and the Labor Market," IMF Working Papers 2014/216, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:2014/216
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    2. Tomomi Miyazaki & Haruo Kondoh, 2022. "Effects of Monetary and Fiscal Policy Interactions on Regional Employment: Evidence from Japan," Discussion Papers 2206, Graduate School of Economics, Kobe University.
    3. Ebeke, Christian H. & Eklou, Kodjovi M., 2023. "Automation and the employment elasticity of fiscal policy," Journal of Macroeconomics, Elsevier, vol. 75(C).
    4. João Carlos Lopes & João Ferreira do Amaral, 2017. "Self-defeating austerity? Assessing the impact of a fiscal consolidation on unemployment," The Economic and Labour Relations Review, , vol. 28(1), pages 77-90, March.
    5. Oseni, Isiaq Olasunkanmi & Oyelade, Aduralere O., 2023. "Effect of Capital Expenditure on Unemployment Rate in Nigeria," African Journal of Economic Review, African Journal of Economic Review, vol. 11(3), June.
    6. Patrick M. Crowley & David Hudgins, 2021. "Okun’s law revisited in the time–frequency domain: introducing unemployment into a wavelet-based control model," Empirical Economics, Springer, vol. 61(5), pages 2635-2662, November.
    7. Tomomi Miyazaki & Haruo Kondoh & Huanhuan Guo & Naoto Tanemoto, 2025. "Effects of Fiscal Policy on Employment under the Zero Lower Bound in Japan: An Empirical Investigation with Gender and Regional Heterogeneity," Discussion Papers 2524, Graduate School of Economics, Kobe University.
    8. Adesoji O. Farayibi & Oludele Folarin, 2020. "Does Government Education Expenditure Affect Educational Outcomes? New Evidence from Sub-Sahara African Countries," Research Africa Network Working Papers 21/048, Research Africa Network (RAN).
    9. João Ferreira do Amaral & João Carlos Lopes, 2016. "Self-Defeating Austerity? Assessing the Impact of Fiscal Consolidations on Unemployment," Working Papers Department of Economics 2016/13, ISEG - Lisbon School of Economics and Management, Department of Economics, Universidade de Lisboa.
    10. Iyanatul Islam, 2018. "Fiscal Consolidation, Growth and Employment: International Evidence and Implications for India," The Indian Journal of Labour Economics, Springer;The Indian Society of Labour Economics (ISLE), vol. 61(1), pages 105-130, March.
    11. Adesoji O. Farayibi & Oludele Folarin, 2021. "Does Government Education Expenditure Affect Educational Outcomes? New Evidence from Sub-Sahara African Countries," Working Papers of the African Governance and Development Institute. 21/048, African Governance and Development Institute..
    12. Adesoji O. Farayibi & Oludele Folarin, 2021. "Does Government Education Expenditure Affect Educational Outcomes? New Evidence from Sub-Sahara African Countries," Working Papers 21/048, European Xtramile Centre of African Studies (EXCAS).

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    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory

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