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

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  • T. DHONT

    ()

  • F. HEYLEN

    ()

Abstract

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.

Suggested Citation

  • T. Dhont & F. Heylen, 2006. "Employment and growth in Europe and the US - The role of fiscal policy composition," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 06/420, Ghent University, Faculty of Economics and Business Administration.
  • Handle: RePEc:rug:rugwps:06/420
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    References listed on IDEAS

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    1. Edward C. Prescott, 2004. "Why do Americans work so much more than Europeans?," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Jul, pages 2-13.
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    Citations

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    Cited by:

    1. Buyse, Tim & Heylen, Freddy & Van De Kerckhove, Renaat, 2017. "Pension reform in an OLG model with heterogeneous abilities," Journal of Pension Economics and Finance, Cambridge University Press, vol. 16(02), pages 144-172, April.
    2. T. Buyse & F. Heylen, 2012. "Leaving the empirical (battle)ground: Output and welfare effects of fiscal consolidation in general equilibrium," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 12/826, Ghent University, Faculty of Economics and Business Administration.
    3. Renaat Van de Kerckhove & Freddy Heylen & Tim Buyse, 2011. "Pension reform, employment by age, and long-run growth in OECD countries," 2011 Meeting Papers 736, Society for Economic Dynamics.
    4. Michał Konopczyński, 2014. "How Taxes and Spending on Education Influence Economic Growth in Poland," Contemporary Economics, University of Finance and Management in Warsaw, vol. 8(3), September.
    5. Freddy Heylen & Renaat Van de Kerckhove, 2014. "Heterogeneous ability and the effects of fiscal policy on employment, income and welfare in general equilibrium," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 14/898, Ghent University, Faculty of Economics and Business Administration.
    6. Tim Buyse & Freddy Heylen & Renaat Van de Kerckhove, 2013. "Pension reform, employment by age, and long-run growth," Journal of Population Economics, Springer;European Society for Population Economics, vol. 26(2), pages 769-809, April.
    7. Pier Carlo Padoan, 2010. "Fiscal Policy in the Crisis: Impact, Sustainability, and Long-Term Implications," Working Papers id:3036, eSocialSciences.
    8. Gerdie Everaert & Freddy Heylen & Ruben Schoonackers, 2015. "Fiscal policy and TFP in the OECD: measuring direct and indirect effects," Empirical Economics, Springer, vol. 49(2), pages 605-640, September.
    9. Michał Konopczyński, 2014. "How Budget Deficit Impairs Long-Term Growth and Welfare under Perfect Capital Mobility," Central European Journal of Economic Modelling and Econometrics, CEJEME, vol. 6(3), pages 129-152, September.
    10. R. Schoonackers & F. Heylen, 2011. "Fiscal Policy and TFP in the OECD: A Non-Stationary Panel Approach," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 11/701, Ghent University, Faculty of Economics and Business Administration.
    11. Vincenzo Atella & Lorenzo Carbonari & Paola Samà, 2017. "Hours Worked in Selected OECD Countries: an Empirical Assessment," CEIS Research Paper 412, Tor Vergata University, CEIS, revised 21 Jul 2017.
    12. Heylen Freddy & Van de Kerckhove Renaat, 2013. "Employment by age, education, and economic growth: effects of fiscal policy composition in general equilibrium," The B.E. Journal of Macroeconomics, De Gruyter, vol. 13(1), pages 1-55, October.
    13. Tino Berger & Freddy Heylen, 2011. "Differences in Hours Worked in the OECD: Institutions or Fiscal Policies?," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 43(7), pages 1333-1369, October.

    More about this item

    Keywords

    fiscal policy; taxes; transfers; government spending; employment; 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
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
    • 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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