Fiscal stimulus and labor market policies in Europe

Faia, Ester; Lechthaler, Wolfgang; Merkl, Christian

doi:10.1016/j.jedc.2012.09.004

“…This is easily explained by the larger share of non-Ricardian households we obtain in our estimates. Figure 3 shows that the positive response in the consumption of these households is reinforced by 11 Short run and long run multipliers are de…ned as in Faia et al (2013), the short run multiplier being the impact multiplier and the long run multiplier being the cumulative e¤ect over the 40 periods considered. 12 In Figures 2 to 4, we plot the Bayesian IRFs obtained at the posterior mean (solid lines) and the 90% con…dence bands (dotted lines).…”

Section: Fiscal Multipliersmentioning

confidence: 99%

In search of the Euro area fiscal stance

Albonico

¹

,

Paccagnini

²

,

Tirelli

³

2016

Journal of Empirical Finance

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This paper investigates the role of …scal policies over the aggregate EMU business cycle. Previous studies, based on the assumption of non-separability between public and private consumption, obtain a large public consumption multiplier, a small fraction of non-Ricardian households and, consequently, a relatively small multiplier for public transfers. We provide motivations for assuming separability and, on these grounds, we estimate a relatively large share of non-Ricardian households. As a result, we obtain that both multipliers are large. We also …nd that, in spite of their potentially strong e¤ects, …scal policies were substantially muted during the EMU years. This result is con…rmed even for the post 2007 period. In fact …scal policies did not complement the monetary policy stimulus in response to the …nancial crisis. Further, we cannot detect any substantial aggregate e¤ect of austerity measures. Finally, the post-2007 surge in expenditure-to-GDP ratios was apparently determined by non-policy shocks that reduced output growth.

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“…However, given that they do not estimate their model, fiscal rules are applied equally for spending and labor taxes. Faia et al (2013) also analyze the effects of alternative fiscal instruments in addition to government spending. They find relatively large multipliers for labor tax cuts (0.4 to 0.7).…”

Section: The Results In Perspectivementioning

confidence: 99%

“…In a model with a search and matching labor market, marginal costs of production reflect not only unit labor costs, but the long run value of a match. This long run value depends also on aggregate labor market conditions rather then firm-specific characteristics alone (see Krause et al, 2008or Faia et al, 2013 for details).…”

Section: Fiscal Multipliersmentioning

confidence: 99%

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Fiscal Rules and Unemployment

Gehrke

¹

2018

Macroecon. Dynam.

2

0

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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. and consumption tax cuts are substantial, even though output multipliers turn out to be less than one. Second, multipliers for labor tax cuts are small. Third, fiscal rules enhance the positive effects of discretionary fiscal policy. However, these expansionary effects on the multipliers are modest compared to earlier studies. Terms of use: Documents in EconStor mayJEL Classification: E62, J20, C11

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“…In particular, most of the European countries with relatively rigid labour markets, which are subject to strict employment protections, such as Germany and Italy, have invested to decrease job destruction, stimulate job creation and tried to cope with the problem of labour market segmentation. On the other side, flexible labour markets with loose employment protections, such as the US 1 and the UK, have acted interventions to facilitate job creation (Faia et al, 2013).…”

Section: Introductionmentioning

confidence: 99%

Fiscal Stimulus and Labor Market Flexibility

Topal

¹

2015

SSRN Journal

1

0

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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...

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Fiscal stimulus and labor market policies in Europe

Cited by 60 publications

References 33 publications

In search of the Euro area fiscal stance

In search of the Euro area fiscal stance

Fiscal Rules and Unemployment

Fiscal Stimulus and Labor Market Flexibility

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