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Government Fiscal Efforts vs. Labour Union Strikes: It Takes Two to Tango

Author

Listed:
  • Massimiliano Castellani

    () (Department of Economics, University of Bologna, Italy; The Rimini Centre for Economic Analysis, Italy)

  • Luca Fanelli

    () (Department of Statistical Sciences, University of Bologna, Italy)

  • Marco Savioli

    () (Department of Economics, University of Siena, Italy; The Rimini Centre for Economic Analysis, Italy; School of Economics, Management, and Statistics, Rimini campus, University of Bologna, Italy)

Abstract

In this paper, we propose a novel policy-game model to analyse the simultaneous interaction between the government and the labour union in a unionised economy. Our model explains how the economic and political interaction between labour unions, concerning wages and strikes, and the government, dealing with unemployment and fiscal policy, gives rise to a long run Cournot-Nash equilibrium. We estimate the policy-game model by a cointegrated Vector Autoregressive system using Italian quarterly data (1960-2009) on government budget surplus (fiscal efforts) and on hours not worked (strikes) and the speed of their long run adjustment. At equilibrium, a rise in unemployment has a negative effect on the level of effort and strike, while a rise in wages has a positive and negative effect on the level of effort and strike, respectively. A phase diagram interpretation of the estimated model is provided and some policy implications are discussed.

Suggested Citation

  • Massimiliano Castellani & Luca Fanelli & Marco Savioli, 2013. "Government Fiscal Efforts vs. Labour Union Strikes: It Takes Two to Tango," Working Paper series 33_13, Rimini Centre for Economic Analysis, revised Jan 2014.
  • Handle: RePEc:rim:rimwps:33_13
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    References listed on IDEAS

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    6. Roberto Perotti, 1999. "Fiscal Policy in Good Times and Bad," The Quarterly Journal of Economics, Oxford University Press, vol. 114(4), pages 1399-1436.
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    More about this item

    Keywords

    Fiscal efforts; strikes; policy game; VEqC; speed of adjustment;

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
    • J51 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - Trade Unions: Objectives, Structure, and Effects
    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • C54 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Quantitative Policy Modeling
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models

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