Standard business cycle models face difficulties generating (i) government spending multipliers exceeding unity and (ii) stabilizing effects of government size. Using a simple model with externality in labor supply, we show that a sufficient degree of complementarity between aggregate and private labor supplies is key to reproducing these stylized facts.
Externality; Labor supply; Government spending multiplier; Government size;
- E32: Business Fluctuations • Cycles
- E63: Comparative or Joint Analysis of Fiscal and Monetary Policy • Stabilization • Treasury Policy
Patrick Fève, Julien Matheron, and Jean-Guillaume Sahuc, “Externality in labor supply and government spending”, Economics Letters, Elsevier, vol. 112, n. 3, September 2011, pp. 273–276.
Economics Letters, Elsevier, vol. 112, n. 3, September 2011, pp. 273–276