Fiscal Policy and Unemployment

55 Pages Posted: 4 Nov 2011 Last revised: 27 Dec 2021

See all articles by Marco Battaglini

Marco Battaglini

Princeton University - Department of Economics; Centre for Economic Policy Research (CEPR)

Stephen Coate

Cornell University - Department of Economics; National Bureau of Economic Research (NBER)

Date Written: November 2011

Abstract

This paper explores the interaction between fiscal policy and unemployment. It develops a dynamic economic model in which unemployment can arise but can be mitigated by tax cuts and public spending increases. Such policies are fiscally costly, but can be financed by issuing government debt. In the context of this model, the paper analyzes the simultaneous determination of fiscal policy and unemployment in long run equilibrium. Outcomes with both a benevolent government and political decision-making are studied. With political decision-making, the model yields a simple positive theory of fiscal policy and unemployment.

Suggested Citation

Battaglini, Marco and Coate, Stephen, Fiscal Policy and Unemployment (November 2011). NBER Working Paper No. w17562, Available at SSRN: https://ssrn.com/abstract=1954489

Marco Battaglini (Contact Author)

Princeton University - Department of Economics ( email )

213 Fisher Hall
Princeton, NJ 08544
United States
609-258-4002 (Phone)
609-258-6419 (Fax)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Stephen Coate

Cornell University - Department of Economics ( email )

414 Uris Hall
Ithaca, NY 14853-7601
United States
607-255-1912 (Phone)
607-205-2818 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
54
Abstract Views
657
rank
496,447
PlumX Metrics