Fiscal Multipliers in a Two-Sector Search and Matching Model

42 Pages Posted: 10 Feb 2015

See all articles by Konstantinos Angelopoulos

Konstantinos Angelopoulos

Athens University of Economics and Business - Department of International and European Economic Studies

Jiang Wei

Zhejiang University - School of Management

Jim Malley

University of Glasgow - Department of Economics

Date Written: January 31, 2015

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.

Keywords: fiscal multipliers, sectoral labour markets, search and matching

JEL Classification: E240, E320, J630, J640, J680

Suggested Citation

Angelopoulos, Konstantinos and Wei, Jiang and Malley, Jim, Fiscal Multipliers in a Two-Sector Search and Matching Model (January 31, 2015). CESifo Working Paper Series No. 5197, Available at SSRN: https://ssrn.com/abstract=2562253 or http://dx.doi.org/10.2139/ssrn.2562253

Konstantinos Angelopoulos

Athens University of Economics and Business - Department of International and European Economic Studies ( email )

GR-10434 Athens
Greece

Jiang Wei

Zhejiang University - School of Management ( email )

Hangzhou, Zhejiang Province 310058
China

Jim Malley (Contact Author)

University of Glasgow - Department of Economics ( email )

Adam Smith Building
Glasgow, Scotland G12 8RT
United Kingdom
+44 141 330 4617 (Phone)
+44 141 330 4940 (Fax)

HOME PAGE: http://www.gla.ac.uk/economics/malley/

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