Public Finance Solutions To The European Unemployment Problem

This book analyzes the effects of the recent crisis and evaluates potential solutions to the gridlock that is currently dominating the Eurozone and the European Union, concerning both the monetary policy and the budgetary and fiscal policy. The timely study highlights the main challenges that European political leaders will face in the months to come. Furthermore, its interdisciplinary approach embraces economic, financial and legal perspectives, so as to ensure the global coherence and comprehensiveness of its content. The contributors to this volume are prominent experts from the areas of Economics, Finance, Law, and Political Science, offering readers a multifaceted view of the topics discussed.

This book, edited by S.G.B. Henry and Dennis J. Snower, examines the high unemployment that has plagued five European countries- France, Germany, Italy, Spain, and the United Kingdom- for more than a decade. Its methodology focuses on the mechanisms that prevent employers and employees from adjusting promptly to changing market opportunities. Chief among these mechanisms are outdated economic structures, the power of labor unions, rising nonwage labor costs, and the disparity between unemployed workers and available jobs. Although cross-country differences indicate that there is no common cause for joblessness in Europe, the book discusses a unique characteristic of the European labor market- that unemployment not only rises during recessions, but does not fall when economic weaknesses are overcome.

The SDN will assess the youth unemployment problem in advanced European countries, with a special focus on the euro area. It will document the main trends in youth and adult unemployment in 22 European countries before and after the global financial crisis. It will identify the main drivers of youth and adult unemployment, focusing in particular on the role of the business cycle and structural characteristics of the labor market. It will outline the main elements of a comprehensive strategy to address the problem.

This book challenges the macroeconomic policy orthodoxies currently being applied in most European countries. The book identifies the misplaced policy orthodoxies and then sets out 23 policy principles (including new economic policy paradigms) that should guide economic policy-making in Europe going forward. The new overarching policy objective should be to provide stimulus and economic growth without raising public debt. The book argues that current fiscal austerity policies are taking the periphery economies and the United Kingdom in the wrong direction. The book establishes the case for a reversal of policy aimed at providing economic stimulus and growth. Austerity forces real wages to fall in an uncoordinated manner, lowers demand and tax revenue, raises unemployment and adds to budget deficits and the level of public debt. The book explains why the financing on-going budget deficits by the issuance of new government bonds adds to public debt and could result in higher interest rates. It is also demonstrated that creating new money to purchase government bonds on the secondary market is a second or third best policy. The book recommends that, instead, new money creation should be used to finance on-going fiscal deficits. By this method economic stimulus can be delivered without raising public debt further. To resolve the external competitiveness problem that afflicts the periphery countries the book recommends a prices and incomes policy. This policy would replace austerity to achieve the right balance between wages and prices, and the required deflation in prices. Under this approach there is no need to increase unemployment. The book explains how the new approach to monetary and fiscal policy coordination could be implemented. Potential options include the central bank or the Ministry of Finance creating new money to finance the fiscal deficit. As well, the book explains how this policy can be implemented in a way that does not increase inflation. The book proceeds in the following way. There are 4 chapters which provide illustrations of how the author has challenged orthodoxies and provided new policy paradigms. These chapters cover the global economic crisis (Chapter 2); the stagflation/real wage problem that occurred in Australia between 1974 and 1982 (Chapter 3); the crisis in respect of the taxation of hybrid financial instruments (Chapter 4); and, the chronic balance of payments crisis present in most Pacific island microstates (Chapter 5). Chapter 2 explains why further quantitative easing will do little to resolve the problem of inadequate aggregate demand. The problems created by continued quantitative easing are identified. Chaoter 2 also explains the history and benefits of the proposed policy of creating new money not to benefit the banks and bond traders (as with QE), but to benefit the real economy: the unemployed, small business and infrastructure projects, where marginal propensities to consume are relatively high. Chapter 3 illustrates how stagflation and high real wage cost problems were resolved in Australia during the 1980s. The solution involved the application of a prices and incomes policy to lower real wages while simultaneously lowering nominal wages and prices. This application of a prices and incomes policy in Australia provides insights as to how a prices and incomes policy could be applied in European periphery countries today, not to lower real wages but to lower prices and improve international competitiveness. Chapter 5 develops a new measure called 'the distance form external balance'. This measure demonstrates that it is the microstates among Pacific island countries are furthest from external balance. The chapter reviews policy options and argues that current 'dollarisation' policies are inappropriate and should be changed. The general policy principles applying in the Pacific currency unions are applicable to the periphery countries in the Eurozone.

The papers in this volume analyse the role of European tax and benefit systems in incentives to create and take up jobs. The first section provides an overview of the issues relating to the trade-off between equity and efficiency. The second section describes the burden of taxation and the generosity of the welfare system in Europe. Part three examines how to evaluate the effects of tax and welfare reforms and the final section looks at ways that tax can be used to deal with some structural problems. The papers show that European policy makers face tough choices and that reforms are costly, with complex trade-offs.

EU member states have seen high levels of unemployment in recent years especially amongst young people. At the same time the fiscal crisis of welfare states has made it difficult for them to invest in new jobs and new economic growth. The EU, at least since the enactment of the Amsterdam treaty, has had a focus on how to support member states¿ development of an employment policy which aims for higher levels of participation, lower levels of unemployment and more gender equal approaches. Through exploring patterns in the recent development of financing and governance of social services and developments of social services and employment in the Czech Republic, Denmark, Germany and the UK, this volume provides readers with new knowledge and evidence of the options regarding social innovation in social services. Furthermore, it provides a comparative European perspective on how the interplay between a public and private mix of social service on the one hand might help in creating jobs, and, on the other, be a way of coping with the needs and expectations of higher level of services in the core areas of the welfare state.

This chapter has set out in detail the models which are employed below in order to analyse the labour market effects of changes in tax rates and in alterations in the tax structure. The fundamental mechanisms underlying the different approaches have been pointed out. Moreover, vital assumptions have been emphasised. By delineating the models which are used for the subsequent analyses, implicitly statements have also been made about topics or aspects which this study does not cover. For example, all workers and firms are identical ex ante. However, ex-post differences are allowed for, inter alia, if unemploy ment occurs or if some firms have to close down. These restrictions indicate areas of future research insofar as that the findings for homogeneous workers or firms yield an unambiguous proposal for changes in tax rates or the tax structure in order to promote employment. This is because it would be desir able for tax policy to know whether the predicted effects also hold in a world with ex-ante heterogeneity. Furthermore, the product market has not played a role. Therefore, repercussions from labour markets outcomes on product demand - and vice versa - are absent. 55 Moreover, neither the process of capital accumulation, be it physical or human capital, nor substitution pos sibilities between labour and capital in the firms' production function are taken into account. Finally, international competition is not modelled.

Optimal tax design attempts to resolve a well-known trade-off: namely, that high taxes are bad insofar as they discourage people from working, but good to the degree that, by redistributing wealth, they help insure people against productivity shocks. Until recently, however, economic research on this question either ignored people's uncertainty about their future productivities or imposed strong and unrealistic functional form restrictions on taxes. In response to these problems, the new dynamic public finance was developed to study the design of optimal taxes given only minimal restrictions on the set of possible tax instruments, and on the nature of shocks affecting people in the economy. In this book, Narayana Kocherlakota surveys and discusses this exciting new approach to public finance. An important book for advanced PhD courses in public finance and macroeconomics, The New Dynamic Public Finance provides a formal connection between the problem of dynamic optimal taxation and dynamic principal-agent contracting theory. This connection means that the properties of solutions to principal-agent problems can be used to determine the properties of optimal tax systems. The book shows that such optimal tax systems necessarily involve asset income taxes, which may depend in sophisticated ways on current and past labor incomes. It also addresses the implications of this new approach for qualitative properties of optimal monetary policy, optimal government debt policy, and optimal bequest taxes. In addition, the book describes computational methods for approximate calculation of optimal taxes, and discusses possible paths for future research.