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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. Calmfors, Lars, 1998. "Macroeconomic Policy, Wage Setting, and Employment--What Difference Does the EMU Make?," Oxford Review of Economic Policy, Oxford University Press and Oxford Review of Economic Policy Limited, vol. 14(3), pages 125-151, Autumn.
    2. Ahonen, Jukka & Pyyhtiä, Ilmo, 1996. "Suomen teollisuuden rakenne ja häiriöalttius suhteessa muihin EU-maihin," Research Discussion Papers 5/1996, Bank of Finland.
    3. 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.
    4. James Tobin, 1993. "Price Flexibility and Output Stability: An Old Keynesian View," Journal of Economic Perspectives, American Economic Association, vol. 7(1), pages 45-65, Winter.
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    Cited by:

    1. 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.
    2. Seppo Honkapohja & Frank Westermann, 2009. "Fiscal Policy and Macroeconomic Stabilisation in the Euro Area: Possible Reforms of the Stability and Growth Pact and National Decision-Making Processes," Palgrave Macmillan Books, in: Seppo Honkapohja & Frank Westermann (ed.), Designing the European Model, chapter 6, pages 177-228, Palgrave Macmillan.
    3. Alho, Kari, 2004. "The Finnish EMU Buffers and the Labour Market under Asymmetric Shocks," Discussion Papers 914, The Research Institute of the Finnish Economy.
    4. 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.

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