Advanced Search
MyIDEAS: Login to save this paper or follow this series

Productivity, Empoyment and Taxes - Evidence on the Potential Trade-offs and Impacts in the EU

Contents:

Author Info

  • Alho, Kari O.E.
  • Nikula, Nuutti
Registered author(s):

    Abstract

    The paper considers time series evidence on the relationships, and possible trade-offs, between productivity and employment, and on the impact of taxes in this connection. First, a theoretical model is built for an open economy leading to the identification of technology, non-technology and tax shocks. Then structural VAR models are estimated for all the EU-15 and some other OECD countries to infer the above links. Our conclusion is that there is in the EU a fairly uniform and significant short-run negative impulse on employment from a positive productivity shock, while this becomes smaller and statistically insignificant over time in most, but not in some member countries. The former situation is interpreted to be an indication of nominal and the latter that of real or structural rigidity in the economy. In the US, there is no such trade-off, either in the short or long run. Tax shocks are found to have mostly a short-run negative effect which is stronger on productivity than on aggregate employment. However, if we separate the effects of labour taxes and corporate taxes, the former have in the EU-15 a strong negative effect on employment while the latter are fairly neutral. Second, we simulate an aggregative econometric labour market model and insert various types of shocks into it : a rise in productivity, achieved, e.g. by enhancing R&D, or by rationalising the use of labour, and a change in the tax/benefit system. We find that although there is no long-run trade-off between productivity and employment, over the medium run acceleration of productivity has a clear positive effect on employment.

    Download Info

    If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
    File URL: http://www.etla.fi/wp-content/uploads/2012/09/dp1054.pdf
    Download Restriction: no

    Bibliographic Info

    Paper provided by The Research Institute of the Finnish Economy in its series Discussion Papers with number 1054.

    as in new window
    Length: 24 pages
    Date of creation: 2006
    Date of revision:
    Handle: RePEc:rif:dpaper:1054

    Contact details of provider:
    Postal: Lönnrotinkatu 4 B, FIN-00120 HELSINKI
    Phone: +358 (0)9 609 900
    Fax: +358 (0)9 601 753
    Web page: http://www.etla.fi/
    More information through EDIRC

    Order Information:
    Email:

    Related research

    Keywords: productivity; employment; taxes; EU;

    Find related papers by JEL classification:

    This paper has been announced in the following NEP Reports:

    References

    References listed on IDEAS
    Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
    as in new window
    1. Daniela Sonedda, 2006. "A structural VAR approach on labour taxation policies," Applied Economics, Taylor & Francis Journals, vol. 38(1), pages 95-114.
    2. Domenico Giannone & Lucrezia Reichlin, 2006. "Does information help recovering structural shocks from past observations?," ULB Institutional Repository 2013/10125, ULB -- Universite Libre de Bruxelles.
    3. Lawrence J. Christiano & Martin Eichenbaum & Robert Vigfusson, 2003. "What Happens After a Technology Shock?," NBER Working Papers 9819, National Bureau of Economic Research, Inc.
    4. Clarida, Richard & Galí, Jordi & Gertler, Mark, 2002. "A Simple Framework for International Monetary Policy Analysis," CEPR Discussion Papers 3355, C.E.P.R. Discussion Papers.
    5. Lawrence J. Christiano & Martin Eichenbaum & Robert Vigfusson, 2004. "The Response of Hours to a Technology Shock: Evidence Based on Direct Measures of Technology," Journal of the European Economic Association, MIT Press, vol. 2(2-3), pages 381-395, 04/05.
    6. Alho, Kari, 2002. "The Equilibrium Rate of Unemployment and Policies to Lower It: The Case of Finland," Discussion Papers 839, The Research Institute of the Finnish Economy.
    7. Albert van der Horst, 2003. "Structural Estimates of Equilibrium Unemployment in Six OECD Economies," Economics Working Papers 022, European Network of Economic Policy Research Institutes.
    8. Alfred V. Guender, 2006. "Stabilising Properties of Discretionary Monetary Policies in a Small Open Economy," Economic Journal, Royal Economic Society, vol. 116(508), pages 309-326, 01.
    9. Broer, D.P. & Draper, D.A.G. & Huizinga, F.H., 2000. "The equilibrium rate of unemployment in the Netherlands," Open Access publications from Tilburg University urn:nbn:nl:ui:12-383721, Tilburg University.
    10. Jordi Galí, 2004. "On The Role of Technology Shocks as a Source of Business Cycles: Some New Evidence," Journal of the European Economic Association, MIT Press, vol. 2(2-3), pages 372-380, 04/05.
    11. Harald Uhlig, 2004. "Do Technology Shocks Lead to a Fall in Total Hours Worked?," Journal of the European Economic Association, MIT Press, vol. 2(2-3), pages 361-371, 04/05.
    12. Bean, Charles R., 1994. "European unemployment: A retrospective," European Economic Review, Elsevier, vol. 38(3-4), pages 523-534, April.
    13. Kaitila, Ville, 2006. "Productivity, Hours Worked, and Tax/Benefit Systems in Europe and Beyond," Discussion Papers 1015, The Research Institute of the Finnish Economy.
    14. Jordi Gali, 1996. "Technology, Employment, and the Business Cycle: Do Technology Shocks Explain Aggregate Fluctuations," NBER Working Papers 5721, National Bureau of Economic Research, Inc.
    15. Alho, Kari, 2002. "Catching Up and Unemployment in the EU," Discussion Papers 762, The Research Institute of the Finnish Economy.
    Full references (including those not matched with items on IDEAS)

    Citations

    Lists

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    Statistics

    Access and download statistics

    Corrections

    When requesting a correction, please mention this item's handle: RePEc:rif:dpaper:1054. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Kaija Hyvönen-Rajecki).

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.