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Dynamic Fiscal Policies, Unemployment, and Economic Growth

Author

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  • Josten, Stefan Dietrich

    () (Helmut Schmidt University, Hamburg)

Abstract

This paper analyzes the growth and employment effects of dynamic fiscal policies in an overlapping generations model with endogenous growth and imperfect labour markets. With balanced-budget policies, the modelled closed economy grows at a constant rate which is the higher, the lower are the labour tax rate and the unemployment rate. Both government Ponzi games and constant-flow budget policies are shown not to be feasible. Furthermore, while constant-stock fiscal policies are sustainable, an increase in the debt-to-capital ratio is accompanied by higher taxes, a rise in unemployment and lower economic growth.

Suggested Citation

  • Josten, Stefan Dietrich, 2003. "Dynamic Fiscal Policies, Unemployment, and Economic Growth," Working Paper 9/2003, Helmut Schmidt University, Hamburg.
  • Handle: RePEc:ris:vhsuwp:2003_009
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    More about this item

    Keywords

    Unemployment; Public debt; Economic growth; Overlapping generations;

    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
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt
    • J51 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - Trade Unions: Objectives, Structure, and Effects
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models

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