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Employment and growth in Europe and the US - The role of fiscal policy composition

  • T. DHONT

    ()

  • F. HEYLEN

    ()

We analyze the impact of the composition of fiscal policy 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 three kinds of government expenditures and three kinds of taxes. The model explains what we basically observe in the data for European countries: relatively high employment and growth in the Nordic countries, but poor employment and low growth in the core countries of the euro area. Our model can also explain employment and growth in the US.

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File URL: http://wps-feb.ugent.be/Papers/wp_06_420.pdf
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Paper provided by Ghent University, Faculty of Economics and Business Administration in its series Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium with number 06/420.

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Length: 29 pages
Date of creation: Nov 2006
Date of revision:
Handle: RePEc:rug:rugwps:06/420
Contact details of provider: Postal: Hoveniersberg 4, B-9000 Gent
Phone: ++ 32 (0) 9 264 34 61
Fax: ++ 32 (0) 9 264 35 92
Web page: http://www.ugent.be/eb
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  1. Lorenzo Pozzi, 2003. "Tax Discounting in a High-debt Economy," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 65(3), pages 261-282, 07.
  2. S. Ederveen & H.L.F. de Groot & R. Nahuis, 2003. "Fertile soil for structural funds? a panel data analysis of the conditional effectiveness of European cohesion policy," Working Papers 03-14, Utrecht School of Economics.
  3. Edward C. Prescott, 2004. "Why do Americans Work so Much More than Europeans?," NBER Working Papers 10316, National Bureau of Economic Research, Inc.
  4. Giuseppe Nicoletti & Stefano Scarpetta, 2003. "Regulation, Productivity and Growth: OECD Evidence," OECD Economics Department Working Papers 347, OECD Publishing.
  5. Kneller, Richard & Bleaney, Michael F. & Gemmell, Norman, 1999. "Fiscal policy and growth: evidence from OECD countries," Journal of Public Economics, Elsevier, vol. 74(2), pages 171-190, November.
  6. Patrick Honohan & Brendan Walsh, 2002. "Catching Up with the Leaders: The Irish Hare," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 33(1), pages 1-78.
  7. Lindbeck, Assar, 1982. "Tax Effects versus Budget Effects on Labor Supply," Economic Inquiry, Western Economic Association International, vol. 20(4), pages 473-89, October.
  8. Karras, Georgios, 1994. "Government Spending and Private Consumption: Some International Evidence," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 26(1), pages 9-22, February.
  9. Giuseppe Nicoletti & Stefano Scarpetta, 2005. "Product Market Reforms and Employment in OECD Countries," OECD Economics Department Working Papers 472, OECD Publishing.
  10. Michael P. Devereux & Rachel Griffith & Alexander Klemm, 2002. "Corporate income tax reforms and international tax competition," Economic Policy, CEPR;CES;MSH, vol. 17(35), pages 449-495, October.
  11. 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.
  12. C. Denis & K. Mc Morrow & W. R�ger & R. Veugelers, 2005. "The Lisbon Strategy and the EU's structural productivity problem," European Economy - Economic Papers 221, Directorate General Economic and Monetary Affairs (DG ECFIN), European Commission.
  13. Peter Lindert, 2004. "Social Spending and Economic Growth," Challenge, M.E. Sharpe, Inc., vol. 47(4), pages 6-16, July.
  14. Richard B. Freeman & Ronald Schettkat, 2005. "Marketization of household production and the EU–US gap in work," Economic Policy, CEPR;CES;MSH, vol. 20(41), pages 6-50, 01.
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