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Technology Trade with Asymmetric Tax Regimes and Heterogeneous Labor Markets: Implications for Macro Quantities and Asset Prices

Author

Listed:
  • Giuliano Curatola

    () (Faculty of Economics and Business Administration and Research Center SAFE, Goethe University Frankfurt)

  • Michael Donadelli

    () (Faculty of Economics and Business Administration and Research Center SAFE, Goethe University Frankfurt)

  • Patrick Grüning

    () (Bank of Lithuania & Faculty of Economics, Vilnius University)

Abstract

The international diffusion of technology plays a key role in stimulating global growth and explaining co-movements of international equity returns. Existing empirical evidence suggests that countries are heterogeneous in their attitude toward innovation: Some countries rely more on technology adoption while other countries rely more on internal technology production. European countries that rely more on adoption are also typically characterized by lower fiscal policy flexibility and higher labor market rigidity. We develop a two-country model, in which both countries rely on R&D and adoption, to study the shortand long-run effects of aggregate technology and adoption probability shocks on economic growth in the presence of the aforementioned asymmetries. Our framework suggests that an increase in the ability to adopt technology from abroad stimulates future economic growth in the country that benefits from higher adoption rates but the beneficial effects also spread to the foreign country. Moreover, it helps to explain the differences in macro quantities and equity returns observed in the international data.

Suggested Citation

  • Giuliano Curatola & Michael Donadelli & Patrick Grüning, 2017. "Technology Trade with Asymmetric Tax Regimes and Heterogeneous Labor Markets: Implications for Macro Quantities and Asset Prices," Bank of Lithuania Working Paper Series 47, Bank of Lithuania.
  • Handle: RePEc:lie:wpaper:47
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Technology Adoption; R&D Investment; Asymmetric Tax Regimes; Asset Prices;
    All these keywords.

    JEL classification:

    • E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles
    • F3 - International Economics - - International Finance
    • F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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