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

Author

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  • Kiander, Jaakko
  • Holm, Pasi
  • Tossavainen, Pekka

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.

Suggested Citation

  • Kiander, Jaakko & Holm, Pasi & Tossavainen, Pekka, 1999. "Social Security Funds, Payroll Tax Adjustment and Real Exchange Rate: The Finnish Model," Discussion Papers 198, VATT Institute for Economic Research.
  • Handle: RePEc:fer:dpaper:198
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    File URL: https://www.doria.fi/handle/10024/148410
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    References listed on IDEAS

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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.
    2. Ahonen, Jukka & Pyyhtiä, Ilmo, 1996. "Suomen teollisuuden rakenne ja häiriöalttius suhteessa muihin EU-maihin," Research Discussion Papers 5/1996, Bank of Finland.
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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.
    2. Lars Calmfors, 2001. "Wages and Wage-Bargaining Institutions in the EMU – A Survey of the Issues," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 28(4), pages 325-351, December.
    3. Calmfors, Lars, 2001. "Wages and wage-bargaining institutions in the EMU – a survey of the issues," Seminar Papers 690, Stockholm University, Institute for International Economic Studies.

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