Abstract In this paper, we study the effect of search and matching frictions, i.e., equilibrium unemployment, on fiscal financing decisions in the United States. We build a Real Business Cycle model with labour market frictions and a rich set of fiscal tools and estimate the model using Bayesian methods on US data for various fiscal rule specifications. Most importantly, we find that the model with unemployment, output and debt in the fiscal rules fits the data best. Under the fiscal rule that best fits the data, the reaction of fiscal instruments to output and debt are significantly quantitatively different than a rule that ignores unemployment. Fiscal instruments react stronger to cyclical factors except transfers. These changes also affect model dynamics in response to fundamental non‐fiscal shocks.

Dennis Wesselbaum

Labour

LABOUR provides a forum for analysis and debate on issues concerning labour economics and industrial relations. The Journal publishes high quality contributions which combine economic theory and statistical methodology in order to analyse behaviour, institutions and policies relevant to the labour market.

The journal Labour provides a forum for the analysis and discussion of issues related to labour economics and industrial relations. It publishes high-quality contributions that integrate economic theory and statistical methodology to analyze behaviors, institutions, and policies relevant to the labor market.

《Labour》期刊提供了一个分析和讨论劳动经济学及工业关系相关问题的论坛。该期刊发表高质量的研究成果，结合经济理论和统计方法，以分析与劳动市场相关的行为、机构和政策。

Fiscal financing with labour markets frictions

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Journal Info

Category	Quartile
INDUSTRIAL RELATIONS & LABOR	4