The effects of public sector employment on inequality and fiscal multiplier

• Grant number: 18/11520-9
• Support Opportunities: Scholarships abroad - Research Internship - Doctorate (Direct)
• Start date: September 01, 2018
• End date: April 05, 2019
• Field of knowledge: Applied Social Sciences - Economics - Fiscal and Monetary Policies
• Principal Investigator: Marcelo Rodrigues dos Santos
• Grantee: Luís Gustavo Bettoni
• Supervisor: Ronald Wolthoff
• Host Institution: Instituto de Ensino e Pesquisa (Insper). São Paulo , SP, Brazil
• Institution abroad: University of Toronto (U of T), Canada
• Associated to the scholarship: 17/18943-0 - Optimal fiscal policy in business cycle economies with incomplete markets, BP.DD

Abstract

Following the 2008 Financial Crisis, there was a heap in the use of anticyclical fiscal policy around the world, mostly financed through debt. In many European countries, this promptly led to fiscal imbalances and an urge for the adoption of fiscal consolidation policies either through public expenditures reduction or through tax increases. The heterogeneous response to fiscal consolidation observed across countries recalled the debate about the determinants of fiscal multipliers. The upsurging literature suggests that the effects of fiscal consolidation depend on country characteristics. In this research project, we propose a new dimension that can help understand these heterogeneous responses: public sector employment. We aim to contribute to the literature, both empirically and theoretically, by presenting empirical evidence and a general equilibrium model that captures the main mechanisms through which public sector employment may affect the size of fiscal multipliers. (AU)