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Labour 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 ()

No 2/RT/18, Research Technical Papers from Central Bank of Ireland

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

Keywords: DSGE models; labour taxes; unemployment; monetary union; open-economy macroeconomics (search for similar items in EconPapers)
JEL-codes: E24 E32 E52 E62 F45 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-dge, nep-eec and nep-mac
Date: 2018-02
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Related works:
Journal Article: Labor Tax Reforms, Cross-Country Coordination, and the Monetary Policy Stance in the Euro Area: A Structural Model-Based Approach (2018) Downloads
Working Paper: Labour tax reforms, cross-country coordination and the monetary policy stance in the euro area: a structural model-based approach (2018) Downloads
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