https://macropaperwarehouse.com/authors/christian-bredemeier/Christian BredemeierHugo -- gohugo.ioen-usThu, 01 Jan 2026 00:00:00 +0000https://macropaperwarehouse.com/papers/labour-market-power-and-the-effects-of-fiscal-policy/Thu, 01 Jan 2026 00:00:00 +0000https://macropaperwarehouse.com/papers/labour-market-power-and-the-effects-of-fiscal-policy/<p>This paper proposes a novel fiscal transmission channel through which government spending expansions reduce employer monopsony power in the labor market, generating larger fiscal multipliers and stronger distributional consequences than standard models predict.</p> <p>Standard New Keynesian models rely on two transmission channels with contested empirical support: a negative wealth effect on labor supply (which moves workers to supply more hours when taxes rise) and countercyclical price markups (which fall in booms, raising labor demand). The evidence on both is ambiguous. This paper introduces a third channel — countercyclical monopsony power — that operates independently of, and interacts with, the other two.</p>