Tax Reform and Labour-Market Performance in the Euro Area: A Simulation-Based Analysis Using the New Area-Wide Model

By Guenter Coenen, Peter Mcadam, Roland Straub. Social Science Research Network, 2008

336 citations recorded by the source corpus.

In this paper, we employ a calibrated two-country version of the New Area-Wide Model (NAWM) currently under development at the European Central Bank to examine the potential benefits and spillovers of reducing labour-market distortions caused by euro area tax structures. Our analysis shows that lowering tax distortions to levels prevailing in the United States would result in an increase in hours worked and output by more than 10 percent. At the same time, tax reductions would have positive spillovers to the euro area's trade partners, bolstering the case for tax reforms from a global perspective. Finally, we illustrate that, in the presence of heterogeneous households, distributional effects may be of importance when gauging the impact of tax reforms. JEL Classification: E32, E62

Subfields: Economics and Econometrics

View Paper: https://www.semanticscholar.org/paper/31daf1c9ebe4b8c8b02581f2d6d3a387217ab726

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Citations in the corpus

The macroeconomics of fiscal consolidations in euro area countries (2010, background): “The columns (7)-(9) replicate the baseline scenario assuming ω = 0.”
MACROECONOMIC EFFECTS OF GREATER COMPETITION IN THE SERVICE SECTOR: THE CASE OF ITALY (2010, background): “(9) where MCN is the nominal marginal cost:”
Fiscal policy and the Great Recession in the Euro Area (2012, positive): “We use these data to simulate the nominal interest rate that is implied by the Taylor-type feedback rule (see Coenen et al., 2008) in the model.”
Fiscal consolidation in the euro area: long-run benefits and short-run costs (2008, neutral): “2 For a related analysis focusing on tax reforms and their possible impact on the performance of labour markets in the euro area, see Coenen, McAdam and Straub (2005) .”
The EAGLE: A Model for Policy Analysis of Macroeconomic Interdependence in the Euro Area (2012, neutral): “[7] Coenen, G.”
A new comparative approach to macroeconomic modeling and policy analysis (2012, neutral): “1 EA_CW05ta Coenen and Wieland (2005), (Taylor-staggered contracts) 3.2 EA_CW05fm Coenen and Wieland (2005), (Fuhrer-Moore-staggered contracts) 3.”
Structural Reforms and Macroeconomic Performance in the Euro Area Countries: A Model-Based Assessment (2011, background): “6Several recent contributions have also focused on the macroeconomic effects of fiscal (tax- and public spendingbased) reforms in the euro area (see, among the others, Coenen et al., 2008b, and Forni et al., 2010b) and of reforms aimed at reducing worldwide protectionism (see Faruqee et al., 2008).”
The Price Puzzle Revisited: Can the Cost Channel Explain a Rise in Inflation after a Monetary Policy Shock? (2009, background): “Leith and Malley (2005) estimated a value of 0.29, while Coenen, McAdam, and Straub (2006) propose to calibrate the degree of indexation to a value of 0.75.”