TY  - JOUR
AU  - Burnside,Craig
AU  - Eichenbaum,Martin
AU  - Fisher,Jonas D.M.
TI  - Fiscal Shocks in an Efficiency Wage Model
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 7515
PY  - 2000
Y2  - January 2000
UR  - http://www.nber.org/papers/w7515
L1  - http://www.nber.org/papers/w7515.pdf
N1  - Author contact info:
Craig Burnside
Department of Economics
Duke University
213 Social Sciences Building
Durham, NC 27708-0097
Tel: 919/660-1808
Fax: 919/684-8974
E-Mail: craig.burnside@duke.edu

Martin S. Eichenbaum
Department of Economics
Northwestern University
2003 Sheridan Road
Evanston, IL  60208
Tel: 847/491-8232
Fax: 847/491-7001
E-Mail: eich@northwestern.edu

Jonas Fisher
Economic Research Department
Federal Reserve Bank of Chicago
230 South LaSalle Street
Chicago, IL  60604
Tel: 312/312-8177
Fax: NA
E-Mail: jfisher@frbchi.org
AB  - This paper analyzes the ability of a general equilibrium efficiency wage model to account for the estimated response of hours worked and of real wages to a fiscal policy shock.  Our key finding is that the model cannot do so unless we make the counterfactual assumption that marginal tax rates are constant. The model shares the strengths and weaknesses of high labor supply elasticity Real Business Cycle models.  In particular it can account for the conditional volatility of real wages and hours worked.  But it cannot account for the temporal pattern of how these variables respond to a fiscal policy shock and generates a counterfactual negative conditional correlation between government purchases and hours worked.
ER  -