Fiscal Stimuli in the Form of Job Creation Subsidies
Chun-Hung Kuo Hiroaki Miyamoto
This paper examines the effects of fiscal stimuli in the form of job creation subsidies in a DSGE model with search frictions in the labor market. We consider two types of job creation subsidies: a subsidy to the cost of posting vacancies and a hiring subsidy. Our model demonstrates that qualitative effects of a vacancy cost subsidy are similar to those of a hiring subsidy. Quantitatively, however, the vacancy cost subsidy is more effective in lowering unemployment than the hiring subsidy. We also compute fiscal multipliers for both traditional increases in government spending and increases in job creation subsidies.