Impact of Fiscal Policy on Unemployment

Abstract

Under the conditions of a modern market economy, the employment issue is a difficult problem that governments around the world must face directly. As one of the most important means for governments to implement macroeconomic regulation and control, it is of greater theoretical and practical significance to give full play to the positive role of fiscal policy in promoting employment. This paper introduces the concept of a flow model of unemployment to study the impact of fiscal policy on the labour market and explores the government's role in easing the contradiction between labour supply and demand and unifying the labour market through fiscal expenditure, taxation, social security and other means. This paper consists of four parts. The first part describes a flow model of unemployment in detail and studies how to reduce the unemployment rate theoretically. The second and third parts tell the different effects of expansionary fiscal policy and tight fiscal policy on the unemployment rate respectively, and how the government chooses the appropriate fiscal policy. The fourth part of the article selects the example of Japan in an economic down cycle to illustrate that the government needs to take into account both short-term and long-term factors, as well as the overall and local economic situation, and choose an appropriate direction or combination of fiscal policies in order to reduce the unemployment rate.