A Fiscal Job? An Analysis of Fiscal Policy and the Labor Market

By Elva Bova, Christina Kolerus, Sampawende J Tapsoba

December 12, 2014

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Elva Bova, Christina Kolerus, and Sampawende J Tapsoba. A Fiscal Job? An Analysis of Fiscal Policy and the Labor Market, (USA: International Monetary Fund, 2014) accessed December 22, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

This paper examines the impact of fiscal policy on employment through the lenses of Okun’s Law. Looking at the panel of OECD countries over the past three decades, we find that fiscal policy can affect employment beyond the impact it is traditionally assumed to exert through the output multiplier. In particular, this impact is found to be effective for most items of current discretionary expenditure and for corporate income taxes and social security contributions. Okun’s Law is found to be stable under almost all model specifications, but higher spending on subsidies and lower social security contributions can amplify the impact of the output gap on employment gaps.

Subject: Employment, Fiscal policy, Labor, Output gap, Production, Social security contributions, Taxes, Unemployment

Keywords: Capital expenditure, Center, Employment, Employment gap, Employment gaps, Employment multiplier, Employment outcome, Firms hire, Fiscal policy, Global, Labor market, Labor market outcome, Output gap, Social security contributions, Substitution effect, Unemployment, Wage, Wage bill, WP

Publication Details

Pages:

27
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2014/216
Stock No:

WPIEA2014216
ISBN:

9781498330473
ISSN:

1018-5941

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