Research
 Working Papers/ Work in Progress
A Heterogeneous Agent New Keynesian Model of Search Frictions and Public Sector Employment
Abstract: This paper studies how public sector employment affects aggregate output and employment. Although public sector employment represents a significant share of modern economies, its effects remain largely unexplored. To fill this gap, I develop a Heterogeneous Agent New Keynesian model, featuring unemployment risk and a frictional labour market, calibrated for France and the US. I find notable cross-country differences in public sector size and labour markets, leading to distinct policy effects: In both countries, higher public sector employment lowers unemployment, with multipliers above unity, driven by (i) a rise in aggregate demand, (ii) a drop in unemployment risk, and (iii) labour market frictions, limiting crowding out. Results are also affected by tax policy financing the public sector, with a stronger impact in the US under lump-sum taxes and in France under a lump-sum/labour tax mix. Similarly aggregate output increases in France, with multipliers above unity under the lump-sum/labour tax mix, with weaker effects in the US.
The Role of Public Sector Employment Under Persistent Unemployment (Draft Available Upon Request)