Journal Article

Fiscal Stimulus and Labor Market Policies in Europe

Journal of Economic Dynamics and Control

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.


Wolfgang Lechthaler - Kiel Institute
Wolfgang Lechthaler
Christian Merkl


Publication Date
JEL Classification
E62, H30, J20, H20