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Active versus Passive Policies of Unemployment: Growth and Public Finance Perspectives


  • Rangan Gupta

    () (Department of Economics, University of Pretoria)

  • Charlotte du Toit

    (Department of Economics, University of Pretoria)


This paper develops a general equilibrium endogenous growth model in an overlapping generations framework, and compares, in terms of economic growth, a passive unemployment policy (unemployment insurance) with an active unemployment policy (government expenditures targeted towards improving the job- finding probability of an unemployed). Besides, the standard result of unemployment being growth reducing, under realistic parameterization, we show that the government, under an active policy, can generate higher growth without any compromise on its own consumption, when compared to the unemployment benefit regime. The result, however, depends crucially on the efficiency with which the resources are spent in creating employment.

Suggested Citation

  • Rangan Gupta & Charlotte du Toit, 2006. "Active versus Passive Policies of Unemployment: Growth and Public Finance Perspectives," Working Papers 200620, University of Pretoria, Department of Economics.
  • Handle: RePEc:pre:wpaper:200620

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    References listed on IDEAS

    1. Pami Dua & Anirvan Banerji & Stephen M. Miller, 2006. "Performance evaluation of the New Connecticut Leading Employment Index using lead profiles and BVAR models," Journal of Forecasting, John Wiley & Sons, Ltd., vol. 25(6), pages 415-437.
    2. Johansen, Soren, 1995. "Likelihood-Based Inference in Cointegrated Vector Autoregressive Models," OUP Catalogue, Oxford University Press, number 9780198774501.
    3. William C. Gruben & William T. Long, III, 1988. "The New Mexico economy: outlook for 1989," Economic and Financial Policy Review, Federal Reserve Bank of Dallas, issue Nov, pages 21-36.
    4. William C. Gruben & William T. Long, 1988. "Forecasting the Texas economy: applications and evaluation of a systematic multivariate time series model," Economic and Financial Policy Review, Federal Reserve Bank of Dallas, issue Jan, pages 11-28.
    5. H. Smith & J.n. Blignaut & J.h. Van heerden, 2006. "An Analysis Of Inventory Investment In South Africa," South African Journal of Economics, Economic Society of South Africa, vol. 74(1), pages 6-19, March.
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    More about this item


    Active and Passive Policies of Unemployment; Unemployment Benefits; Endogenous Growth;

    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
    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models


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