Employers who use temporary agency staff in contrast to regular staff are not affected byemployment protection regulations when terminating a job. Therefore, services providedby temporary work agencies may be seen as a substitute for regular employment. In thispaper, we analyze the effects of...

Labor market studies on the effects of minimum wages are typically confined to the sector or worker group directly affected. We present a two-sector search model in which one sector is more productive than the other one and thus, pays higher wages. In such a framework, setting a minimum wage in...

In theoretical literature, the effects of employment protection on unemployment are ambiguous. Higher employment protection decreases job creation as well as job destruction. However, in most models, wages are bargained individually between workers and firms. Using a conventional matching model...

In a dynamic model of fiscal policy, social polarization provokes a deficit bias. Policy advisors have recently proposed that governments running a deficit should be forced to generate additional tax revenue. We show that this deficit taxation reduces the deficit bias as it internalizes the...

In a New Keynesian DSGE model with labor market frictions and liquidityconstrained consumers aggregate unemployment is likely to increase due to a non-persistent government spending shock. Furthermore, the group of asset-holding households reacts very differently from the group of...

The current crisis and discussions, in the euro area in particular, show that sovereign debt crises/defaults are no longer restricted to developing economies. After crises in many Latin American countries, the literature on quantitative dynamic macro-models of sovereign default has been...

We discuss how cross-country unemployment insurance can be used to improve international risk sharing. We use a two-country business cycle model with incomplete financial markets and frictional labor markets where the unemployment insurance scheme operates across both countries. Cross-country...

Using an estimated large-scale New-Keynesian model, we assess welfare and business cycle consequences of a fiscal union within EMU. We differentiate between three different scenarios: public revenue equalisation, tax harmonisation and a centralised fiscal authority. Relative to the status quo,...

From an economic perspective, imposing a credible one-off net wealth levy in crisis times as a tool to ward off a national emergency appears to be advantageous as, in an ideal world, this would not distort market players’ allocation decisions. However, in practice, charging such a levy may...

This paper develops a medium-scale dynamic, stochastic, general equilibrium (DSGE) model for fiscal policy simulations. Relative to existingmodels of this type, our model incorporates a two-country monetary union structure, which makes it well suited to simulate fiscal measures by relatively...