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Working Paper Series

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Working papers disseminate economic research relevant not only to the tasks and functions of the Bank of Lithuania and of the European System of Central Banks but also appealing more broadly to the academic community in economics and finance. They present, discuss and analyse the results of original and academically rigorous theoretical and/or empirical research. Working papers constitute the basis for publications in leading academic journals, making contributions to the existing literature in the fields of economics and finance. They encourage collaboration between the researchers of the Bank of Lithuania and other central banks, Lithuanian and foreign universities and research institutes.

Papers are only available in English.

No 76
2020-06-18

Workers' job mobility in response to severance pay generosity

  • Abstract

    This paper studies the impact of severance pay generosity on workers' voluntary mobility decisions. The identification strategy exploits a major labor market reform in Spain in February 2012 together with the exposure of some workers to a layoff shock. I rely on rich administrative data to estimate a discrete time duration model with dynamic treatment effects. The results show that a decrease in mobility costs induced by a reduction in severance pay made workers who expected to be displaced in the near future more likely to voluntarily leave their employers. The results indicate that policies targeting employers may also affect workers' behavior. They further reveal the relevance of taking into account interactions between employment protection and unemployment insurance.

    JEL Codes: J62, J63, J65.

    The views expressed are those of the author(s) and do not necessarily represent those of the Bank of Lithuania.

No 72
2020-02-07

Statutory, effective and optimal net tax schedules in Lithuania

  • Abstract

    We estimate effective and optimal net income tax schedules and compare them to estimated statutory rates for the case of Lithuania in the period 2014-2015. Values of effective net tax rates are estimated from the survey of EU Statistics on Income and Living Conditions, the statutory net tax rates are estimated with the European tax-benefit simulator Euromod, while optimal net taxes are calculated via Saez (2002) methodology. We find that the three net tax schedules are similar for employees in the middle of the income distribution. At the bottom of the income distribution, optimal net tax schedules suggest higher in-work benefits. The net tax schedules diverge substantially for the self-employed. At the top of the income distribution, where the majority of self-employed are concentrated, the self-employed are required to pay 15 cents less net taxes per euro than employees - and they effectively pay 29 cents less.

    JEL Codes: H2, H21.

    The views expressed are those of the author(s) and do not necessarily represent those of the Bank of Lithuania.

No 68
2019-11-29

Employment and Wages over the Business Cycle in Worker-Owned Firms: Evidence from Spain

  • Abstract

    This paper compares worker-owned firms and mainstream capital-owned enterprises over the business cycle. Specifically, I study whether conventional employees in worker-owned firms enjoy greater employment stability than similar workers in traditional enterprises over the business cycle, and investigate whether this stability is associated with greater volatility of working-time or wages. Unlike the literature that has compared partners of cooperatives to wage-earners of mainstream firms, I compare wage-earners across both type of organizations along the three margins of adjustment. To perform the econometric analysis, I rely on rich Spanish administrative data and panel data methods to account for composition differences between the two types of organizations. The results show that worker-owned firms offer higher job security because they do not adjust employment levels over the business cycle as much as mainstream enterprises. Wages and working-time, instead, are equally responsive across the two types of firms. The findings can be rationalized by the presence of similar labor regulations and differences in the objectives of the two type of organizations. Namely, both types of firms are constrained by regulations, such as the national Labor Code and collective bargaining, on the adjustments they can impose on wages and working-time. However, the social nature of worker-owned firms mitigates employment volatility in these organizations.

    JEL Codes: J21, J31, J54.

    The views expressed are those of the author(s) and do not necessarily represent those of the Bank of Lithuania.

No 67
2019-09-27

More Gray, More Volatile? Aging and (Optimal) Monetary Policy

  • Abstract

    The empirical and theoretical evidence on the inflation impact of population aging is mixed, and there is no evidence regarding the volatility of inflation. Based on advanced economies’ data and a DSGE-OLG model - a multi-period general equilibrium framework with overlapping generations, - we find that aging leads to downward pressure on inflation and higher inflation volatility. Our paper is also the first to discuss, using this framework, how aging affects the short-term cyclical behavior of the economy and the transmission channels of monetary policy. Further, we are also the first to examine the interplay between aging and optimal central bank policies. As aging redistributes wealth among generations, generations behave differently, and the labor force becomes more scarce with aging, our model suggests that aging makes monetary policy less effective, and aggregate demand less elastic to changes in the interest rate. Moreover, in more gray societies central banks should react more strongly to nominal variables, and in a very old society the nominal GDP targeting rule might become the most effective monetary policy rule to compensate for higher inflation volatility. 

    JEL Codes: E31, E52, J11.

    The views expressed are those of the author(s) and do not necessarily represent those of the Bank of Lithuania.