Unemployment fiscal multipliers
By: Tommaso Monacelli, Roberto Perotti, Antonella Trigari
Contributors: Perotti, Roberto; Trigari, Antonella; National Bureau of Economic Research
Series: NBER working paper series -- working paper 15931; Working paper series (National Bureau of Economic Research : Online) -- working paper no. 15931.
Publisher: National Bureau of Economic Research
Published: 2010
Place of publication: Cambridge, MA
Language: eng
Format: Electronic resource
Description: "We estimate the effects of fiscal policy on the labor market in US data.  An increase in government spending of 1 percent of GDP generates output and unemployment multipliers respectively of about 1.2 per cent (at one year) and 0.6 percentage points (at the peak).  Each percentage point increase in GDP produces an increase in employment of about 1.3 million jobs.  Total hours, employment and the job finding probability all rise, whereas the separation rate falls.  A standard neoclassical model augmented with search and matching frictions in the labor market largely fails in reproducing the size of the output multiplier whereas it can produce a realistic unemployment multiplier but only under a special parameterization.  Extending the model to strengthen the complementarity in preferences, to include unemployment benefits, real wage rigidity and/or debt financing with distortionary taxation only worsens the picture.  New Keynesian features only marginally magnify the size of the multipliers.  When complementarity is coupled with price stickiness, however, the magnification effect can be large"--National Bureau of Economic Research web site.
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