Working Paper: CEPR ID: DP1428
Authors: Gilles Saint-Paul
Abstract: This paper studies, in a model with unemployment, how labour market status affects the preferences for public spending, in the form of a public good or subsidies. It then derives the implications for the dynamics of government expenditures under the hypothesis of majority voting. These will exhibit positive persistence if the employed are marginally more powerful than the unemployed, and negative persistence if the unemployed are marginally more powerful. Under a uniform distribution of tastes for the public good, there is no persistence. The preferences of the unemployed may be non-single-peaked, so that high unemployment may destroy the existence of a voting equilibrium.
Keywords: Fiscal Policy; Public Spending; Unemployment; Voting; Political Economy; Job Creation
JEL Codes: E62; H2; H5; J6
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| unemployment (J64) | preferences for government spending (H56) |
| employed individuals (J29) | preferences for maintaining government spending (H61) |
| unemployed individuals (J65) | preferences for higher government spending (H59) |
| employed individuals (J29) | positive persistence in public spending (H54) |
| unemployed individuals (J65) | negative persistence in public spending (H69) |
| preferences of employed individuals + preferences of unemployed individuals (J68) | no persistence in government spending (H50) |
| labor mobility (J62) | sensitivity to changes in employment levels (J63) |
| insider effect (G14) | probability of remaining employed (J63) |