Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/179342
Authors: 
Jacquinot, Pascal
Pisani, Massimiliano
Lozej, Matija
Year of Publication: 
2018
Series/Report no.: 
ECB Working Paper 2127
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.
Subjects: 
DSGE models
labour taxes
unemployment
monetary union
open-economy macroeconomics
JEL: 
E24
E32
E52
E62
F45
Persistent Identifier of the first edition: 
ISBN: 
978-92-899-3232-5
Document Type: 
Working Paper

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