We study empirically how various labour market institutions – (i) union density, (ii) unemployment benefit remuneration, and
(iii) employment protection – shape fiscal multipliers and output volatility. Our theoretical model highlights that more stringent
labour market institutions attenuate both fiscal spending multipliers and macroeconomic volatility. This is validated empirically
by an interacted panel vector autoregressive model estimated for 16 OECD countries. The strongest effects emanate from employment
protection, followed by union density. While some labor market institutions mitigate the contemporaneous impact of shocks,
they, however, reinforce their propagation mechanism. The main policy implication is that stringent labor market institutions
render cyclical fiscal policies less relevant for macroeconomic stabilization.
We assess the role that nontradable goods play as a determinant of fiscal spending multipliers, making use of a two-sector
model. While fiscal multipliers increase with the share of nontradable goods, an inverted U-shaped relationship exists between
multiplier size and the import share. Employing an interacted panel VAR model for EU countries, we estimate the effect of
the share of nontradable goods on fiscal spending multipliers. Our empirical results provide strong evidence for the predictions
of the theoretical model. They imply that the drag of fiscal consolidations is on average smaller in countries with a low
share of nontradable goods.
Using a unique dataset comprising information for (up to) 153 firms in the machine building sector in Belarus, we investigate
the determinants of firm growth for an economy where state ownership of enterprises is widespread. We use panel data models
based on generalizations of Gibrat's law, total factor productivity estimates and matching methods to assess the differences
in firm growth between private and state-controlled firms. Our results indicate that labor hoarding and soft budget constraints
play a particularly important role in explaining differences in performance between these two groups of firms.
