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Fiscal Policy and Unemployment

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  • Marco Battaglini
  • Stephen Coate

Abstract

This paper explores the interaction between fiscal policy and unemployment. It develops a dynamic economic model in which unemployment can arise but can be mitigated by tax cuts and public spending increases. Such policies are fiscally costly, but can be financed by issuing government debt. In the context of this model, the paper analyzes the simultaneous determination of fiscal policy and unemployment in long run equilibrium. Outcomes with both a benevolent government and political decision-making are studied. With political decision-making, the model yields a simple positive theory of fiscal policy and unemployment.

Suggested Citation

  • Marco Battaglini & Stephen Coate, 2011. "Fiscal Policy and Unemployment," NBER Working Papers 17562, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:17562
    Note: EFG PE POL
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    Cited by:

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    2. Ordóñez, Javier & Monfort, Mercedes & Cuestas, Juan Carlos, 2019. "Oil prices, unemployment and the financial crisis in oil-importing countries: The case of Spain," Energy, Elsevier, vol. 181(C), pages 625-634.
    3. Manuela CHETUE Komguep & Luc NDEFFO Nembot, 2021. "Why Do Employment Policies Fail to Reduce Unemployment in Sub-Saharan Africa? Looking towards the brain drain," Economics Bulletin, AccessEcon, vol. 41(2), pages 615-633.
    4. Dop㉠M. Adjor & Lã‰Leng Kebalo, 2018. "Does Corruption Matter For Unemployment In Sadc Countries?," Review of Economic and Business Studies, Alexandru Ioan Cuza University, Faculty of Economics and Business Administration, issue 22, pages 65-92, December.
    5. Mahalia Jackman, 2014. "A Note on the Labor Market Effects of Remittances in Latin American and Caribbean Countries: Do Thresholds Exist?," The Developing Economies, Institute of Developing Economies, vol. 52(1), pages 52-67, March.

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    More about this item

    JEL classification:

    • E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H3 - Public Economics - - Fiscal Policies and Behavior of Economic Agents
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt

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