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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in Non-Technical SummaryThe current global economic and financial crisis has drawn the attention of the academic and policy circle to the role and efficiency of fiscal policy and brought it to the center of the debate. As nominal interest rates reached the zero lower bound and the traditional monetary transmission mechanism failed to deal with the demand contraction, fiscal stimulus packages have been suggested as a better tool to boost economies and encounter the remedies of the experienced downturn. Thus, the large-scale fiscal stimulus packages have been implemented around the globe. A closer look at the composition of these packages suggests that the advanced economies strongly focused on labour market measures to cushion the fall in economic output and employment by following the policy advices on necessity of labour market deregulation.Despite of the ongoing debate on the efficiency of fiscal policy implications and labour market reforms, there is no clear consensus about their effectiveness. None of the existing studies has investigated on this issue so far and focused on both the ability of government expenditure shocks to boost output and reduce unemployment and its effectiveness on different labour market institutions. To fill the gap, this paper contributes to the literature by investigating whether fiscal stimulus impact differs for flexible and rigid labour markets. This question is crucial to be answered in order to understand the role of different labour market structures in determining the success of fiscal stimulus. By proxying the flexibility of labour markets with employment protection legislation indicator of OECD, I study whether government spending shocks are able to stimulate economic growth more in the markets with weaker employment protections than the ones with stricter regulations and additionally the impact of fiscal stimulus on unemployment.My empirical results indicate significant differences between rigid and flexible labour markets regarding the impact of the fiscal stimulus on output and unemployment. While the impulse response of real GDP to a government spending shock is positive and more effective in flexible labour markets, it has less impact in the rigid ones. The results show that as the labour markets get more flexible, the impact on the output gets more persistent. It is also found that fiscal stimulus leads to higher overall unemployment in highly regulated countries. This finding confirms...

The current global economic and financial crisis has drawn the attention of the academic and policy circle to the role and efficiency of fiscal policy and brought it to the center of the debate. As nominal interest rates reached the zero lower bound and the traditional monetary transmission mechanism failed to deal with the demand contraction, fiscal stimulus packages have been suggested as a better tool to boost economies and encounter the remedies of the experienced downturn. Thus, the large-scale fiscal stimulus packages have been implemented around the globe. A closer look at the composition of these packages suggests that the advanced economies strongly focused on labour market measures to cushion the fall in economic output and employment by following the policy advices on necessity of labour market deregulation.Despite of the ongoing debate on the efficiency of fiscal policy implications and labour market reforms, there is no clear consensus about their effectiveness. None of the existing studies has investigated on this issue so far and focused on both the ability of government expenditure shocks to boost output and reduce unemployment and its effectiveness on different labour market institutions. To fill the gap, this paper contributes to the literature by investigating whether fiscal stimulus impact differs for flexible and rigid labour markets. This question is crucial to be answered in order to understand the role of different labour market structures in determining the success of fiscal stimulus. By proxying the flexibility of labour markets with employment protection legislation indicator of OECD, I study whether government spending shocks are able to stimulate economic growth more in the markets with weaker employment protections than the ones with stricter regulations and additionally the impact of fiscal stimulus on unemployment.My empirical results indicate significant differences between rigid and flexible labour markets regarding the impact of the fiscal stimulus on output and unemployment. While the impulse response of real GDP to a government spending shock is positive and more effective in flexible labour markets, it has less impact in the rigid ones. The results show that as the labour markets get more flexible, the impact on the output gets more persistent. It is also found that fiscal stimulus leads to higher overall unemployment in highly regulated countries. This finding confirms the evidence from the existing literature implying that rigid labour market structure is associated with low job creation rate for the unemployed individuals and increasing labour market flexibility has a significant negative effect on unemployment rate. As labour markets get flexible, government expenditure shocks trigger a stronger increase in the new job creation rate, which leads to reduction in the overall unemployment.My findings emphasize that fiscal stimulus may not be able to help rigid labour markets in boosting the economic growth and reducing the unemployment rate. As high employment protections i...