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Fiscal Multipliers in a Two-Sector Search and Matching Model

Author

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  • Konstantinos Angelopoulos
  • Wei Jiang
  • Jim Malley

Abstract

This paper evaluates the effects of policy interventions on sectoral labour markets and the aggregate economy in a business cycle model with search and matching frictions. We extend the canonical model by including capital-skill complementarity in production, labour markets with skilled and unskilled workers and on-the-job-learning (OJL) within and across skill types. We first find that, the model does a good job at matching the cyclical properties of sectoral employment and the wage-skill premium. We next find that vacancy subsidies for skilled and unskilled jobs lead to output multipliers which are greater than unity with OJL and less than unity without OJL. In contrast, the positive output effects from cutting skilled and unskilled income taxes are close to zero. Finally, we find that the sectoral and aggregate effects of vacancy subsidies do not depend on whether they are financed via public debt or distorting taxes.

Suggested Citation

  • Konstantinos Angelopoulos & Wei Jiang & Jim Malley, 2015. "Fiscal Multipliers in a Two-Sector Search and Matching Model," CESifo Working Paper Series 5197, CESifo.
    • Handle: RePEc:ces:ceswps:_5197
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    3. Albertini, Julien & Hairault, Jean-Olivier & Langot, François & Sopraseuth, Thepthida, 2017. "A Tale of Two Countries: A Story of the French and US Polarization," IZA Discussion Papers 11013, Institute of Labor Economics (IZA).

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    More about this item

    Keywords

    fiscal multipliers; sectoral labour markets; search and matching;
    All these keywords.

    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • J63 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Turnover; Vacancies; Layoffs
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search
    • J68 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Public Policy

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