Labor Market Institutions, Fiscal Multipliers, and Macroeconomic Volatility

Arbeitspapier

We study empirically how various labor market institutions – (i) union density, (ii) unemployment benefit remuneration, and (iii) employment protection – shape fiscal multipliers and output volatility. Our theoretical model highlights that more stringent labor market institutions attenuate both fiscal spending multipliers and macroeconomic volatility. This is validated empirically by an interacted panel vector autoregressive model estimated for 16 OECD countries. The strongest effects emanate from employment protection, followed by union density. While some labor market institutions mitigate the contemporaneous impact of shocks, they, however, reinforce their propagation mechanism. The main policy implication is that stringent labor market institutions render cyclical fiscal policies less relevant for macroeconomic stabilization.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: CESifo Working Paper ; No. 9749

Classification and Topics

• Classification: Wirtschaft ; Fiscal Policy ; Multiple or Simultaneous Equation Models: Panel Data Models; Spatio-temporal Models ; Labor Force and Employment, Size, and Structure ; Wages, Compensation, and Labor Costs: Public Policy
• Subject: fiscal policy ; fiscal multipliers ; labor market institutions ; interacted panel VAR

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Boeck, Maximilian ; Crespo Cuaresma, Jesús ; Glocker, Christian
• Event: Veröffentlichung
• (who): Center for Economic Studies and ifo Institute (CESifo)
• (where): Munich
• (when): 2022

Further information

• Handle: http://hdl.handle.net/10419/260879
• Last update: 10.03.2025, 11:43 AM CET