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Evaluating Labor Market Targeted Fiscal Policies in High Unemployment EZ Countries

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  • Elton Beqiraj
  • Massimiliano Tancioni

Abstract

Two labor market targeted …scal policies, a hiring subsidy and a wage subsidy for new hires of labor, are evaluated, and their macroeconomic e¤ects compared with those of standard …scal instruments. The analyses are based on an extension of a monetary, open economy, search and matching model in which a distinction between the wage negotiated by newly hired workers and incumbents is introduced. The model is estimated with Bayesian techniques using data for high unemployment countries of the EZ periphery (Greece, Ireland, Italy, Portugal and Spain). Posterior simulations show that, the labor market policies are not superior to standard fi…scal expansions in stimulating a timely response of economic activity, and their output and employment-enhanching effects are dominant only in the long term and at the Greece and Portugal estimates. The consideration of a liquidity trap environment marginally reinforces these results, showing that expansionary policy actions triggering a defl‡ation can be procyclical when the interest rate zero-lower-bound binds.

Suggested Citation

  • Elton Beqiraj & Massimiliano Tancioni, 2014. "Evaluating Labor Market Targeted Fiscal Policies in High Unemployment EZ Countries," Working Papers 165, University of Rome La Sapienza, Department of Public Economics.
  • Handle: RePEc:sap:wpaper:wp165
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    More about this item

    Keywords

    wage and hiring subsidies; newly hired workers; search and matching; fiÂ…scal multiplier; zero lower bound; Bayesian estimation.;

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • H30 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - General
    • J20 - Labor and Demographic Economics - - Demand and Supply of Labor - - - General
    • C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Bayesian Analysis: General

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