This paper addresses an obvious but neglected feature that the effects of
fiscal policy on employment vary substantially depending on how we spend
public funds in addition to how we raise tax revenues. Tax revenues raised
from distortionary taxation can be recycled to the economy in various forms,
ranging from lumpsum transfer, pure leakage in economic activity,
leisure-based transfer, to work-based transfer. We consider each of these
recycling schemes and then examine how the current fiscal policy structure
affects the employment level using the data about government expenditures.
Finally, we draw some useful implications regarding the recent jobless growth
phenomenon.