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Fiscal Policy, Employment And Growth: Why Is Continental Europe Lagging Behind?

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  • T. DHONT

  • F. HEYLEN

Abstract

In this paper we analyse the impact of distortionary taxes, transfers related to structural nonemployment and productive government expenditures on employment and long-run growth. Our theoretical model builds on Barro (JPE, 1990) which we extend by endogenizing the decision to work and by allowing two kinds of government expenditures. The model explains what we basically observe in the data: (i) higher growth and employment in the US (low taxes and low transfers related to structural non-employment), (ii) higher growth and employment in Scandinavia (high taxes, but high productive expenditures and low transfers related to structural non-employment) and (iii) lower growth and poor employment in continental Europe (high taxes, high transfers, lower productive government expenditures).

Suggested Citation

  • T. Dhont & F. Heylen, 2004. "Fiscal Policy, Employment And Growth: Why Is Continental Europe Lagging Behind?," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 04/275, Ghent University, Faculty of Economics and Business Administration.
    • Handle: RePEc:rug:rugwps:04/275
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    File URL: http://wps-feb.ugent.be/Papers/wp_04_275.pdf
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    References listed on IDEAS

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    1. Peter Lindert, 2004. "Social Spending and Economic Growth," Challenge, Taylor & Francis Journals, vol. 47(4), pages 6-16.
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    Cited by:

    1. Tine Dhont & Freddy Heylen, 2009. "Employment and growth in Europe and the US--the role of fiscal policy composition," Oxford Economic Papers, Oxford University Press, vol. 61(3), pages 538-565, July.

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    Keywords

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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
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models

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