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Do differences in international labor mobility lead to differences in the fiscal multiplier? A theoretical approach

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  • Pfammatter, Andrea Corina

Abstract

A real business cycle economy with endogenous labor supply and heterogeneous households is modeled. I allow for different degrees of labor migration to assess potential differences in the effects of changes in government consumption on aggregate economic activity. I argue that a relatively elastic labor migration with respect to economic activity may have a positive effect on the effectiveness of fiscal policy because labor migration may influence labor market adjustments after a positive government consumption shock. The findings suggest that there is a positive relationship between labor migration elasticity and the size of the fiscal multiplier. However, whether the relationship is economically meaningful is uncertain and requires further research.

Suggested Citation

  • Pfammatter, Andrea Corina, 2015. "Do differences in international labor mobility lead to differences in the fiscal multiplier? A theoretical approach," MPRA Paper 68955, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:68955
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    More about this item

    Keywords

    Fiscal multiplier; fiscal policy; RBC model; international labor migration;

    JEL classification:

    • F22 - International Economics - - International Factor Movements and International Business - - - International Migration
    • F44 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Business Cycles
    • H3 - Public Economics - - Fiscal Policies and Behavior of Economic Agents
    • J61 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Geographic Labor Mobility; Immigrant Workers

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