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Fiscal Policy and Labor Markets at Times of Public Debt

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  • Bertola, Giuseppe

Abstract

This paper explores the empirical relevance of public debt accumulation for labor market institutions and outcomes. In theory, since debt service obligations act as a constraint on policy choices, past debt accumulation and current interest rates should influence reform incentives and labor market performance. Empirically, employment and unemployment rates are strongly associated with debt stock and debt service indicators over five-year periods along 1980-2000 public debt and interest-rate stabilization cycles. Significant and sensible relationships are apparent between debt service, interacted with country-specific policy indicators, and labor market policy changes. While only further data and research may disentangle the force that jointly shape public finance and labor market developments, past evidence suggests that aggregate fiscal policy reactions to the 2008-09 crisis will have persistent labor market implications.

Suggested Citation

  • Bertola, Giuseppe, 2010. "Fiscal Policy and Labor Markets at Times of Public Debt," CEPR Discussion Papers 8037, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:8037
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    References listed on IDEAS

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    Cited by:

    1. Steinar Holden & Victoria Sparrman, 2018. "Do Government Purchases Affect Unemployment?," Scandinavian Journal of Economics, Wiley Blackwell, vol. 120(1), pages 124-158, January.
    2. Samuel Bentolila & Juan Dolado & Juan Jimeno, 2012. "Reforming an insider-outsider labor market: the Spanish experience," IZA Journal of European Labor Studies, Springer;Forschungsinstitut zur Zukunft der Arbeit GmbH (IZA), vol. 1(1), pages 1-29, December.

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    More about this item

    Keywords

    Debt sustainability; Inequality; Labor market regulation;
    All these keywords.

    JEL classification:

    • H60 - Public Economics - - National Budget, Deficit, and Debt - - - General
    • J08 - Labor and Demographic Economics - - General - - - Labor Economics Policies

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