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Working Paper Series in Economics
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No. 2008-07
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- Lenno Uuskula
- Limited participation or sticky prices? New evidence from firm entry and failures
Traditional models of monetary transmission such as sticky price and limited participation abstract from firm creation and destruction. Only a few papers look at the empirical effects of the monetary shock on the firm turnover measures. But what can we learn about monetary transmission by including measures for firm turnover into the theoretical and empirical models? Based on a large scale vector autoregressive (VAR) model for the U.S. economy I show that a contractionary monetary policy shock increases the number of business bankruptcy filings and failures, and decreases the creation of firms and net entry. According to the limited participation model, a contractionary monetary shock leads to a drop in the number of firms. On the contrary the same shock in the sticky price model increases the number of firms. Therefore the empirical findings support more the limited participation type of the monetary transmission
- JEL-Codes: E32, C32
- Keywords: monetary transmission, limited participation, sticky prices, firm entry, firm bankruptcy, structural VAR
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No. 2008-06
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- Jaanika Merikull and Karsten Staehr
- Unreported employment and tax evasion in mid-transition : comparing developments and causes in the Baltic States
This paper compares the prevalence and determinants of unreported
employment in the three Baltic States in 1998 and 2002 using a hitherto
little used dataset. The prevalence of unreported employment varies
substantially across the three countries and across the two sampling
years. Microeconometric estimations show that firm-related characteristics,
such as sectoral activity, firm size and employment trends, are
important determinants of unreported employment in all three countries,
whereas the impact of individual factors varies across countries and
time. It is shown that only 10�30 percent of the changes in unreported
employment between 1998 and 2002 can be accounted for by changes
in individual characteristics and firm-related factors. Provisional calculations
suggest that the net gain for individuals undertaking unreported
employment is modest, in particular among individuals who regularly
engage in such activities
- JEL-Codes: H26, H24, D19
- Keywords: Unreported employment, informal employment, envelope wages, tax evasion
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No. 2008-05
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- Lenno Uuskula
- Liquidity and productivity shocks: A look at sectoral firm creation
Only a few papers consider the sectoral effects of aggregate shocks.
But do the shocks have homogeneous effects across sectors? This paper
looks at the impact of liquidity and neutral productivity shocks on the
creation of firms across 8 sectors in Estonia. I show that the sectoral
heterogeneity in the reaction is low for liquidity shocks and high for
technology shocks. An increase in liquidity leads to a uniform growth
in the creation of firms across sectors with the exception of the financial
sector. An increase in the labor productivity shock the entry of firms
permanently in sectors that are traditionally considered to be producing
tradables, such as transport or manufacturing. The increase in the
creation of firms is short and close to zero in the long run in the nontradable
sectors, such as retail and whole sale, real estate, and hotels and
restaurants.
- JEL-Codes: E32, C32
- Keywords: VAR, liquidity shocks, technology shocks, firm entry
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No. 2008-04
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- Karsten Staehr
- The Maastricht Inflation
Criterion and the New EU
Members from Central and
Eastern Europe
This paper discusses the prospects of the new EU members from
Central and Eastern Europe joining the European Economic and Monetary
Union in the short and medium term. The countries must attain and
sustain inflation rates sufficiently low to abide by the Maastricht inflation
criterion, but this is complicated by the process of real convergence
exerting upward pressure on the inflation rate. The paper discusses different
strategies which the new EU countries can apply. It is argued that
no one-size-fits-all policy is available and that some countries might be
better off postponing EMU membership in pursuit of other goals. Still,
the special circumstances concerning the Central and Eastern European
EU countries suggest that the process of admission of new countries to
the EMU should be adaptive and pragmatic
- JEL-Codes: E31, E61, F55
- Keywords: Monetary Union, inflation, Maastricht inflation criterion, CEE
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No. 2008-03
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- Karsten Staehr
- Estimates of employment and welfare effects of personal labour income taxation in a flat-tax country : The case of Estonia
This paper presents estimates of the employment and welfare effects of personal labour income taxation in Estonia. The labour supply decision of individuals is estimated based on data from the 2005 Estonian Labour Force Survey. Economic incentives are found to affect the participation decisions of individuals, but not the number of hours worked by individuals already working. The participation elasticities are higher for individuals in the middle income groups than for individuals in the low and high income groups. Increasing the proportional tax rate by 1 percentage point is found to reduce total employment by 0.35 percentage points. The baseline estimate of the marginal cost of public funds is 1.6 if the proportional tax rate is increased and 1.8 if the basic exemption is lowered. The marginal cost of public funds varies across different income groups, which may suggest possible gains in efficiency from reallocating the taxation burden of the existing system of proportional taxation. The employment and welfare estimates are subject to substantial
- JEL-Codes: H21, H24, J21, J22
- Keywords: taxation, labour supply, welfare, excess burden
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No. 2008-02
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- Christian Schulz
- Forecasting economic activity for Estonia : The application of dynamic principal component analyses
In this paper, the dynamic common factors method of Forni et al. (2000) is applied to a large panel of economic time series on the Estonian economy. In order to improve forecasting of economic activity in Estonia, we derive a leading indicator composed of the common components of twelve series, which were identified as leading. The resulting indicator performs better than two other indicators, which are based on a small-scale state-space model used by Stock and Watson (1991) and a large-scale static principal components model used by Stock and Watson (2002), respectively. It also clearly outperforms the naive benchmark in both in-sample and out-of-sample forecast comparisons
- JEL-Codes: C32; C33; C53; E37
- Keywords: Estonia, forecasting, turning points, dynamic factor models, dynamic principal components, forecast performance
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No. 2008-01
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- Jaanika Merikull
- The impact of innovation on employment: firm- and industry-level evidence from Estonia
This paper investigates the implication of innovation on employment at the firm and industry levels. The paper contributes to the literature in two respects. First, it proceeds from the data of a catch-up country undergoing a very rapid economic development. Most of the empirical investigations use data from developed and technologically leading countries. The second contribution concerns the nature of the data in use; we develop a unique database merging the data of the Estonian Commercial Register with two consecutive Estonian Community Innovation Surveys (CIS), the CISIII for 1998-2000 and CISIV for 2002-2004. Our results coincide with the results on developed economies in the respect that innovation activity has a positive effect on employment and that product innovation has a stronger and a more positive employment effect. Both of these effects are consistent over firm and industry levels. This result is also confirmed by the insignificance of the spillover effects of an industry's innovation on employment by firms
- JEL-Codes: J23, O33, D21
- Keywords: innovation (technological change), employment, catch-up economy
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