IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this paper or follow this series

Productivity, Employment and Taxes - A SVAR Analysis of Trade-offs and Impacts

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

    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 labour and capital tax wedge shocks, as based on their long-run effects. Then structural VAR models are estimated for the EU-15 and some other OECD countries to infer the above relationships. 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. The impulse response of the shocks in the tax wedge on labour in the aggregate EU-15 is a fairly sizeable negative impact on employment both in the short and long run, and the effects of capital income tax shocks are negative on productivity. In the majority of the individual EU-15 countries these results are not, however, statistically significant.

    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/dp1074.pdf
    Download Restriction: no

    Paper provided by The Research Institute of the Finnish Economy in its series Discussion Papers with number 1074.

    as
    in new window

    Length: 19 pages
    Date of creation: 2007
    Date of revision:
    Handle: RePEc:rif:dpaper:1074
    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:


    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. 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.
    2. Alho, Kari, 2002. "Catching Up and Unemployment in the EU," Discussion Papers 762, The Research Institute of the Finnish Economy.
    3. 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.
    4. Galí, Jordi, 1996. "Technology, Employment, and the Business Cycle: Do Technology Shocks Explain Aggregate Fluctuations?," CEPR Discussion Papers 1499, C.E.P.R. Discussion Papers.
    5. Daniela Sonedda, 2006. "A structural VAR approach on labour taxation policies," Applied Economics, Taylor & Francis Journals, vol. 38(1), pages 95-114.
    6. Kaitila, Ville, 2006. "Productivity, Hours Worked, and Tax/Benefit Systems in Europe and Beyond," Discussion Papers 1015, The Research Institute of the Finnish Economy.
    7. Giannone, Domenico & Reichlin, Lucrezia, 2006. "Does information help recovering structural shocks from past observations?," Working Paper Series 0632, European Central Bank.
    8. 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.
    9. 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.
    10. Lawrence J. Christiano & Martin Eichenbaum & Robert Vigfusson, 2003. "What happens after a technology shock?," International Finance Discussion Papers 768, Board of Governors of the Federal Reserve System (U.S.).
    11. 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.
    12. Albert van der Horst, 2003. "Structural estimates of equilibrium unemployment in six OECD economies," CPB Discussion Paper 19, CPB Netherlands Bureau for Economic Policy Analysis.
    13. 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.
    14. Bean, Charles R., 1994. "European unemployment: A retrospective," European Economic Review, Elsevier, vol. 38(3-4), pages 523-534, April.
    Full references (including those not matched with items on IDEAS)

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

    When requesting a correction, please mention this item's handle: RePEc:rif:dpaper:1074. 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.

    This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.