Fève, Patrick, Matheron, Julien and Sahuc, Jean-Guillaume (2011) Externality in labor supply and government spending. Economics Letters, 112 (3). pp. 273-276.

Abstract

Standard business cycle models face difficulties generating (i) government spending multipliers exceeding unity and (ii) stabilizing effects of government size. Using a simple model with externality in labor supply, we show that a sufficient degree of complementarity between aggregate and private labor supplies is key to reproducing these stylized facts.