Faculty of Economics and Business Administration Publications Database

Fiscal Calculus and the Labor Market

Campolmi, Alessia
Winkler, Roland
Volume: 11
Number: 1
Pages: Article 38 -
Month: January
Link External Source: Online Version
Year: 2011
Keywords: Fiscal Calculus; Taxation; Matching Frictions; Endogenous Participation
Abstract: The endorsement of expansionary fiscal packages has often been based on the idea that large multipliers can counteract rising and persistent unemployment. We explore the effectiveness of fiscal stimuli in a model with matching frictions and endogenous participation. Results show that hiring subsidies, contrary to increase in government spending, deliver large multipliers, even with distortionary taxation. Those policies increase the incentives to post vacancies, hence employment. Furthermore, by reducing marginal costs they also reduce inflation and increase private consumption.