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Unemployment, Fiscal Stimulus Policy, and Debt Sustainability in an Endogenous Growing Economy

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This study investigates how the government fiscal stimulus policy affects public-debt sustainability and the unemployment rate. We analyze an economy with an imperfect labor market in which the government maintains its budget from tax revenue and public debt. We assume that the government's income transfer is fiscal stimulus policy and show that the policy reduces the unemployment rate, increases the economy's growth rate, and raises the threshold of the ratio of public debt to private capital that is needed to sustain public debt. The arguments presented show that an income transfer policy may generate an economy that not only is sustainable with regard to public debt but also has a low unemployment rate in the long run.
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Keywords: DEBT SUSTAINABILITY; FISCAL STIMULUS POLICY; PUBLIC DEBT

Document Type: Research Article

Publication date: 01 December 2017

This article was made available online on 23 August 2017 as a Fast Track article with title: "Unemployment, Fiscal Stimulus Policy, and Debt Sustainability in an Endogenous Growing Economy".

More about this publication?
  • As one of the world's oldest professional journals in public finance, founded in 1884, FinanzArchiv (FA) publishes original work from all fields of public economics which are of interest to an international readership, e.g. taxation, public debt, public goods, public choice, federalism, market failure, social policy, and the welfare state. Special emphasis is on high-quality theoretical and empirical papers on current policy issues.

    FA is a peer-reviewed journal commited to a prompt turnaround of submissions.

    FA is listed in the Social Science Citation Index (SSCI), in Current Contents/Social and Behavioral Sciences, in Econ Lit, in the Journal of Economic Literature, in IDEAS and RePEc and in the International Bibliography of the Social Sciences.

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