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Chun-Hung Kuo and Hiroaki Miyamoto
''Public investment and labor market flexibility''
( 2023, Vol. 43 No.2 )
This paper examines how labor market flexibility affects the output effect of a public investment shock by using panel data from OECD countries. We identify the public investment shock as a public investment spending forecast error and employ the local projection method to estimate its effect on output. Our empirical analysis shows that labor market flexibility affects the output effect of the public investment shock. While a positive public investment shock boosts output significantly in economies with flexible labor markets, output responses are not statistically significant in economies with rigid labor markets.
Keywords: Public investment, fiscal multipliers, labor market flexibility
JEL: E6 - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General
H3 - Fiscal Policies and Behavior of Economic Agents: General
Manuscript Received : Jan 10 2023 Manuscript Accepted : Jun 30 2023

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