Fiscal Stimulus and Labor Market Policies in Europe

Authors

• Faia
• E.
• Lechthaler
• W.
• Merkl
• C.

Publication Date

JEL Classification

Key Words

Several contributions have recently assessed the size of fiscal multipliers both in RBC models

and in New Keynesian models. This paper computes fiscal multipliers within a labor selection

model with turnover costs and Nash bargained wages. We find that demand stimuli yield small

multipliers, as they have little impact on hiring and firing decisions. By contrast, hiring subsidies, and short-time work (German "Kurzarbeit") deliver large multipliers, as they

stimulate job creation and employment.