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|Title: ||On taxes, labour market distortions and product imperfections|
|Authors: ||Bokan, Nikola|
|Supervisors: ||Hughes-Hallett, Andrew|
|Issue Date: ||2010|
|Abstract: ||This thesis aims to provide new and useful insights into the effects that various
tax, labour and product market reforms have on the overall economic performance.
Additionally, it aims also to provide insights about the optimal monetary
and fiscal policy behaviour within the economy characterized with various real
labour market frictions.
We analyze the benefits of tax reforms and their effectiveness relative to product
or other labour market reforms. A general equilibrium model with imperfect
competition, wage bargaining and different forms of tax distortions is applied in
order to analyze these issues. We find that structural reforms imply short run costs
but long run gains; that the long run gains outweigh the short run costs; and that
the financing of such reforms will be the main stumbling block. We also find that
the effectiveness of various reform instruments depends on the policy maker's ultimate
objective. More precisely, tax reforms are more effective for welfare gains,
but market liberalization is more valuable for generating employment.
In order to advance our understanding of the tax and product market reform
processes, we then develop a dynamic stochastic general equilibrium model which
incorporates search-matching frictions, costly ring and endogenous job destruction
decisions, as well as a distortionary progressive wage and a at payroll tax.
We confirm the negative effects of marginal tax distortions on the overall economic
performance. We also find a positive effect of an increase in the wage tax progressivity
and product market liberalization on employment, output and consumption.
Following a positive technology shock, the volatility of employment, output and
consumption turns out to be lower in the reformed economy, whereas the impact
effect on inflation is more pronounced. Following a positive government spending
shock the volatility of employment, output and consumption is again lower in the
reformed economy, but the inflation response is stronger over the whole adjustment
path. We also find detrimental effects on employment and output of a tax reform
which keeps the marginal tax wedge unchanged by partially offsetting a decrease
in the payroll tax by an increase in the wage tax rate. If this reform is anticipated
one period in advance the negative effects remain all over the transition path.
We investigate the optimal monetary and fiscal policy implication of the
New-Keynesian setup enriched with search-matching frictions. We show that the optimal policy features deviation from strict price stability, and that the Ramsey
planner uses both inflation and taxes in order to fully exploit the benefits of the
productivity increase following a positive productivity shock. We also find that the
optimal tax rate and government liabilities inherit the time series properties of the
underlying shocks. Moreover, we identify a certain degree of overshooting in inflation and tax rates following a positive productivity shock, and a certain degree
of undershooting following a positive government spending shock as a consequence
of the assumed commitment of policy maker.|
|Publisher: ||University of St Andrews|
|Appears in Collections:||Economics & Finance Theses|
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