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Social Security Funds, Payroll Tax Adjustment and Real Exchange Rate: The Finnish Model

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  • Jaakko Kiander
  • Pasi Holm
  • Pekka Tossavainen
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    Abstract

    This paper presents the Finnish system of EMU buffer funds. The idea of the buffer funds is to finance temporary reductions of payroll taxes in a case of asymmetric shock facing the economy. It is well-known that by adjusting payroll taxes it is possible to change real exchange rate, provided that nominal wages are kept unchanged. The paper presents estimation results on the sufficient size of buffer funds. It is shown that relatively modest funds would be capable to cover the costs of stabilization if asymmetric shocks occur.

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    File URL: http://www.vatt.fi/file/vatt_publication_pdf/k198.pdf
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    File URL: http://www.vatt.fi/publications/latestPublications/publication/Publication_1345_id/75
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    Bibliographic Info

    Paper provided by Government Institute for Economic Research Finland (VATT) in its series Discussion Papers with number 198.

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    Date of creation: 01 Jan 1999
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    Handle: RePEc:fer:dpaper:198

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    Related research

    Keywords: Payroll taxes; real exchange rate; Monetary Union;

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    References

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    1. Svensson, Lars E. O., 1994. "Fixed exchange rates as a means to price stability: What have we learned?," European Economic Review, Elsevier, vol. 38(3-4), pages 447-468, April.
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    Cited by:
    1. Alho, Kari, 2004. "The Finnish EMU Buffers and the Labour Market under Asymmetric Shocks," Discussion Papers 914, The Research Institute of the Finnish Economy.

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