European Taxes in a Laboratory
Labour tax rates are considerably heterogeneous across European countries. In this paper, we investigate the effects of a policy experiment in which the tax rates levied on labour are harmonised 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. Countries that decrease their total tax wedge boost their economies while countries that increase their tax wedge lose a proportion of output. The adjustment process is rather complicated: a country which gains in the long run may temporarily go through a period of dampened economic activity. The adjustment process is complicated somewhat by the fact that 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 labour tax system may be better prepared to face common area-wide shocks. On the other hand, shocks originating outside the euro area may increase the volatility of euro area output under the homogenous tax regime.
|Date of creation:||Dec 2011|
|Contact details of provider:|| Postal: Imricha Karvasa 1, 813 25 Bratislava|
Phone: ++421/2/5787 1111
Fax: ++421/2/6787 1100
Web page: http://www.nbs.sk/en/publications-issued-by-the-nbs/working-papers
More information through EDIRC
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.:
- Brzoza-Brzezina, Michał & Jacquinot, Pascal & Kolasa, Marcin, 2010.
"Can we prevent boom-bust cycles during euro area accession?,"
Working Paper Series
1280, European Central Bank.
- Michał Brzoza-Brzezina & Pascal Jacquinot & Marcin Kolasa, 2014. "Can We Prevent Boom-Bust Cycles During Euro Area Accession?," Open Economies Review, Springer, vol. 25(1), pages 35-69, February.
- Michał Brzoza-Brzezina & Pascal Jacquinot & Marcin Kolasa, 2011. "Can we prevent boom-bust cycles during euro area accession?," National Bank of Poland Working Papers 79, National Bank of Poland, Economic Institute.
- Coenen, Günter & McAdam, Peter & Straub, Roland, 2008.
"Tax reform and labour-market performance in the euro area: A simulation-based analysis using the New Area-Wide Model,"
Journal of Economic Dynamics and Control,
Elsevier, vol. 32(8), pages 2543-2583, August.
- Coenen, Günter & McAdam, Peter & Straub, Roland, 2007. "Tax reform and labour-market performance in the euro area: a simulation-based analysis using the New Area-Wide Model," Working Paper Series 0747, European Central Bank.
- Christoffel, Kai & Coenen, Günter & Warne, Anders, 2008. "The New Area-Wide Model of the euro area: a micro-founded open-economy model for forecasting and policy analysis," Working Paper Series 0944, European Central Bank.
- IWATA Yasuharu, 2009. "Fiscal Policy in an Estimated DSGE Model of the Japanese Economy: Do Non-Ricardian Households Explain All?," ESRI Discussion paper series 216, Economic and Social Research Institute (ESRI).
When requesting a correction, please mention this item's handle: RePEc:svk:wpaper:1015. 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: ()
If references are entirely missing, you can add them using this form.