Can Fiscal Policy Explain Cross-Country Differences in Labor Market Performance and Inequality?

Details

Supervisors

Oikonomou, Rigas

Faculty

Faculté des sciences économiques, sociales, politiques et de communication

Degree label

Master [120] en sciences économiques, orientation générale

Abstract

Labor market performance differs widely across OECD countries. A large body of literature has named fiscal policy as an important explanatory factor. This paper assesses how much cross-country variation in aggregate employment and inequality statistics can be explained through country specific policies for 17 OECD countries over the period 2013-2018. We apply two kinds of frameworks: complete markets and the incomplete markets models. Both comprise extensive modeling of fiscal programs: consumption taxation, capital taxation, (progressive) labor taxation, inheritance taxation, government transfers and pensions. We find that the explanatory power of these policies is modest, being able to account at best for 40% of differences in employment and 50% of redistribution and inequality. In line with existing literature, the most influential policies are labor income taxation, transfers and pensions.