Unemployment Fiscal Multipliers [report]

Tommaso Monacelli, Roberto Perotti, Antonella Trigari
2010 unpublished
We estimate the e¤ects of ...scal policy on the labor market in US data. An increase in government spending of 1 percent of GDP generates output and unemployment multipliers respectively of about 1.2 per cent (at one year) and 0.6 percentage points (at the peak). Each percentage point increase in GDP produces an increase in employment of about 1.3 million jobs. Total hours, employment and the job ...nding probability all rise, whereas the separation rate falls. A standard neoclassical model
more » ... ented with search and matching frictions in the labor market largely fails in reproducing the size of the output multiplier whereas it can produce a realistic unemployment multiplier but only under a special parameterization. Extending the model to strengthen the complementarity in preferences, to include unemployment bene...ts, real wage rigidity and/or debt ...nancing with distortionary taxation only worsens the picture. New Keynesian features only marginally magnify the size of the multipliers. When complementarity is coupled with price stickiness, however, the magni...cation e¤ect can be large.
doi:10.3386/w15931 fatcat:snhf2c5hh5as3bfpnw6dkepnbe