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

Jaakko Kiander, Pasi Holm and Pekka Tossavainen

No 198, Discussion Papers from VATT Institute for Economic Research

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.

Keywords: Payroll taxes, real exchange rate, Monetary Union, Macroeconomic policy, Talouspolitiikka, Labour market, Työmarkkinat, Taxation and Social Transfers, Julkisen talouden rahoitus ja tulonsiirrot, E500 - Monetary Policy, Central Banking, and the Supply of Money and Credit: General (flow of funds), E600 - Macroeconomic Policy Formation; Macroeconomic Aspects of Public Finance; Macroeconomic Policy; General Outlook: General, G230 - Non-bank Financial Institutions; Financial Instruments; Institutional Investors, J000 - Labor and Demographic Economics: General, (search for similar items in EconPapers)
Date: 1999
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Citations: View citations in EconPapers (4)

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