2009/01/28 by Evi Pappa · 242 citations
Economics, Econometrics and Finance · #Aggregate (composite) #Business cycle #Consumption (sociology) #Economic Theory and Policy #Economics #Fiscal Policy and Economic Growth #Fiscal policy #Government (linguistics) #Government spending #Investment (military) #Labour economics #Macroeconomics #Market economy #Monetary Policy and Economic Impact #Monetary economics #Monetary policy #New Keynesian economics #Real wages #Wage
paper · doi:10.1111/j.1468-2354.2008.00528.x
published in International Economic Review 50(1), 217-244 (Wiley)
openalex publication_date 2009/01/28 · openalex created_date 2025/10/10 · openalex updated_date 2026/07/29
We study the transmission of fiscal shocks in the labor market. We employ a structural VAR and base identification on the restrictions that shocks to government consumption, investment, and employment must raise output and deficits. These restrictions hold in both prototype Real Business Cycle (RBC) and New Keynesian models. Shocks to government consumption and investment increase real wages and employment contemporaneously, both at state level and in the aggregate. The dynamics in response to employment shocks are mixed: Increases in government employment raise the real wage and total employment in the aggregate. However, in one third of the states they reduce total employment.