Template-Type: ReDIF-Paper 1.0
Author-Name: Alessia Campolmi
Author-X-Name-First: Alessia
Author-X-Name-Last: Campolmi
Author-Email: campolmia@ceu.hu
Author-Workplace-Name: Central European University; Magyar Nemzeti Bank (central bank of Hungary)
Author-Name: Ester Faia
Author-X-Name-First: Ester
Author-X-Name-Last: Faia
Author-Email: faia@wiwi.uni-frankfurt.de
Author-Workplace-Name: Goethe University Frankfurt; Kiel Institute for the World Economy (IfW); CEPREMAP
Author-Name: Roland Winkler
Author-X-Name-First: Roland
Author-X-Name-Last: Winkler
Author-Email: winkler@hof.uni-frankfurt.de
Author-Workplace-Name: Goethe University Frankfurt; Kiel Institute for the World Economy (IfW)
Title: Fiscal Calculus in a New Keynesian Model with Labor Market Frictions
Abstract: During the Great Recession following the recent financial crisis large fiscal stimuli were implemented to counteract labor market sclerosis. We explore the effectiveness of various fiscal packages in a matching model featuring inefficient unemployment and a rich fiscal sector employing distortionary taxation and government debt. Results show that only stimuli directed toward the labor market, such as hiring subsidies, deliver large multipliers. Those policies can, indeed, abate the congestion externality, pervasive in the labor market. Various robustness checks confirm the results. The results obtained in the calibrated model are also confirmed through Bayesian estimation.
Length: 42 pages
Creation-Date: 2011
File-URL: http://www.mnb.hu/letoltes/wp-2011-05.pdf
File-Format: Application/pdf
Number: 2011/5
Classification-JEL: E62, E63, E24
Keywords: fiscal calculus, taxation, matching frictions, bayesian estimation

Handle: RePEc:mnb:wpaper:2011/5