Labor Tax Reforms, Cross-Country Coordination, and the Monetary Policy Stance in the Euro Area: A Structural Model-Based Approach

Pascal Jacquinot, Matija Lozej and Massimiliano Pisani
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Pascal Jacquinot: European Central Bank

International Journal of Central Banking, 2018, vol. 14, issue 3, 65-140

Abstract: We evaluate the effects of permanently reducing labor tax rates in the euro area (EA) by simulating a large-scale openeconomy dynamic general equilibrium model. The model features the EA as a monetary union, split into two regions (home and the rest of the EA, or REA), the United States, and the rest of the world, region-specific labor markets with search and matching frictions, and public employment. Our results are as follows. First, a permanent reduction in labor tax rates in the home region would have stimulating effects on domestic economic activity and employment. Second, reducing labor tax rates simultaneously in both home and REA would have additional expansionary effects on the home region. Third, the short-run macroeconomic effectiveness of the EAwide tax reduction is enhanced if the EA monetary policy is accommodating.

JEL-codes: E24 E32 E52 E62 F45 (search for similar items in EconPapers)
Date: 2018
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Citations: View citations in EconPapers (27)

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Related works:
Working Paper: Labour tax reforms, cross-country coordination and the monetary policy stance in the euro area: A structural model-based approach (2018)
Working Paper: Labour tax reforms, cross-country coordination and the monetary policy stance in the euro area: a structural model-based approach (2018)
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Persistent link: https://EconPapers.repec.org/RePEc:ijc:ijcjou:y:2018:q:2:a:2

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