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Labor Tax Harmonization in a Multi-Country Model

Author

Listed:
  • Matus Senaj

    (National Bank of Slovakia)

  • Milan Vyskrabka

    (National Bank of Slovakia)

Abstract

Labor tax rates are considerably heterogeneous across European countries. In this paper, we investigate the effects of a hypothetical policy experiment in which the tax rates levied on labor are harmonized in the member countries of the euro area. Using a four-country DSGE model, we find that shifts in domestic tax rates are the main driver of the total outcome of the policy change while spillover effects are rather limited in the long run. The short-run adjustment process is rather complicated: a country which gains in the long run may temporarily go through a period of dampened economic activity. In terms of volatility, the euro area with its homogenous labor tax system may be better prepared to face common area-wide shocks. On the other hand, shocks originating outside the euro area may increase volatility in the euro area.

Suggested Citation

  • Matus Senaj & Milan Vyskrabka, 2015. "Labor Tax Harmonization in a Multi-Country Model," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, vol. 65(3), pages 192-210, May.
  • Handle: RePEc:fau:fauart:v:65:y:2015:i:3:p:192-210
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    File URL: http://journal.fsv.cuni.cz/storage/1323_192-210---senaj.pdf
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    References listed on IDEAS

    as
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    3. Gomes, S. & Jacquinot, P. & Pisani, M., 2012. "The EAGLE. A model for policy analysis of macroeconomic interdependence in the euro area," Economic Modelling, Elsevier, vol. 29(5), pages 1686-1714.
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    Cited by:

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    More about this item

    Keywords

    tax reform; DSGE model; euro area;
    All these keywords.

    JEL classification:

    • D58 - Microeconomics - - General Equilibrium and Disequilibrium - - - Computable and Other Applied General Equilibrium Models
    • H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General

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