Fiscal Policy And Trade Openness On Unemployment Essay

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AHMED SALIM NUHU On The Impact of Fiscal Policy and Trade Openness on Unemployment in Namibia 1. Introduction Unemployment remains a fundamental challenge for policy makers around the globe as it simultaneously increases poverty and threatens social stability within a country (Goker, 2013). Even though the literature recognizes the critical role fiscal policy plays in mitigating unemployment and stabilizing the economy (Auerbach, Gale, and Harris, 2010), the extent to which it works effectively to achieve this remains an issue of debate amongst economists (Coate and Battaglini, 2011). However, the massive use of fiscal policy tools by governments in the wake of the 2008 financial crisis has, ignited a renewed interest in examining the role of fiscal policy in promoting growth and employment (Feldstein, 2009). A cursory survey at the literature however, reveals a lack of consensus on the fiscal policy-unemployment debate. For example, using a dynamic stochastic general equilibrium model with search and matching frictions, Gomes (2010) found mixed responses of unemployment to different fiscal shocks. Bruckner and Pappa (2012) found that an increase in government consumption expenditure usually causes higher unemployment whilst Fatas and Mihov (2001) in their study of the United States economy and more recently, Unal, (2015) in his study of the Netherlands economy and, found that higher government consumption was an incentive for increases in employment. These heterogeneous

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