This paper investigates the effect of a government expenditure shock on consumption and real wages. I identify the shock by exploiting its pre-announced nature, i.e. different signs of the responses in investment, hours worked and output during the announcement and after the realization of the...

If demand for human services is inelastic or manufactured goods are necessities, labour shifts from manufacturing to services and the budget share of services rises. Higher productivity growth in the market sector pushes up the tax rate and public employment if private goods and public services...

Domeij and Klein (2005) have shown that the welfare gains of an optimal capital and labor income tax reform decline the longer the reform is pre-announced before its implementation. In other words, pre-announcement is costly in terms of welfare. I reexamine their claim by taking two additional...

In the presence of Walrasian labor markets social policies harm hours worked, employment and output. In non-Walrasian labor markets with trade unions, efficiency wages and/or costly search and mismatch progressive taxation and corporatism induce wage moderation and boost employment and output....