UNEMPLOYMENT, PARTIAL INSURANCE, AND THE MULTIPLIER EFFECTS OF GOVERNMENT SPENDING

I interpret evidence on government spending multipliers using a model in which workers are not fully insured against job loss. Government consumption affects aggregate spending along two margins : (i) an intensive margin owing to a fall in household wealth and (ii) an extensive margin that accounts...

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Bibliographic Details
Published in:International economic review (Philadelphia) 2022-05, Vol.63 (2), p.571-599
Main Author: Givens, Gregory E.
Format: Article
Language:English
Subjects:
Consumption
Economic theory
Government spending
Insurance
Unemployment
Wealth
Workforce
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Summary:I interpret evidence on government spending multipliers using a model in which workers are not fully insured against job loss. Government consumption affects aggregate spending along two margins : (i) an intensive margin owing to a fall in household wealth and (ii) an extensive margin that accounts for growth in the workforce. At insurance levels below a certain threshold, the positive effects of (ii) dominate the negative effects of (i), leading to multipliers for private consumption and output that exceed zero and one. Similar results appear in a quantitative model scaled to match microestimates on the consumption cost of unemployment.
ISSN:0020-6598
1468-2354
DOI:10.1111/iere.12560