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Technology Trade with Asymmetric Tax Regimes and Heterogeneous Labor Markets: Implications for Macro Quantities and Asset Prices

31 Pages Posted: 18 Jan 2017  

Giuliano Curatola

Goethe University Frankfurt - Research Center SAFE

Michael Donadelli

Goethe University Frankfurt - Research Center SAFE

Patrick Grüning

Bank of Lithuania - CEFER; Vilnius University - Faculty of Economics; Research Center SAFE

Date Written: January 9, 2017

Abstract

The international diffusion of technology plays a key role in stimulating global growth and explaining co-movements of international equity returns. Existing empirical evidence suggests that countries are heterogeneous in their attitude toward innovation: Some countries rely more on technology adoption while other countries rely more on internal technology production. European countries that rely more on adoption are also typically characterized by lower fiscal policy exibility and higher labor market rigidity. We develop a two-country model – where both countries rely on R&D and adoption – to study the short-run and long-run effects of aggregate technology and adoption probability shocks on economic growth in the presence of the aforementioned asymmetries. Our framework suggests that an increase in the ability to adopt technology from abroad stimulates economic growth in the country that benefits from higher adoption rates but the beneficial effects also spread to the foreign country. Moreover, it helps explaining the differences in macro quantities and equity returns observed in the international data.

Keywords: Technology Adoption, R&D Investment, Asymmetric Tax Regimes, Asset Prices

JEL Classification: E3, F3, F4, G12

Suggested Citation

Curatola, Giuliano and Donadelli, Michael and Grüning, Patrick, Technology Trade with Asymmetric Tax Regimes and Heterogeneous Labor Markets: Implications for Macro Quantities and Asset Prices (January 9, 2017). SAFE Working Paper No. 163. Available at SSRN: https://ssrn.com/abstract=2896712

Giuliano Curatola

Goethe University Frankfurt - Research Center SAFE ( email )

(http://www.safe-frankfurt.de)
Theodor-W.-Adorno-Platz 3
Frankfurt am Main, 60323
Germany

Michael Donadelli (Contact Author)

Goethe University Frankfurt - Research Center SAFE ( email )

(http://www.safe-frankfurt.de)
Theodor-W.-Adorno-Platz 3
Frankfurt am Main, 60323
Germany

Patrick Grüning

Bank of Lithuania - CEFER ( email )

Totoriu g. 4
Vilnius, LT-01121
Lithuania
+370 5 2680 069 (Phone)

HOME PAGE: http://https://www.lb.lt/cefer

Vilnius University - Faculty of Economics ( email )

Sauletekio al. 9 (II building)
Vilnius, LT-10222
Lithuania

HOME PAGE: http://www.ef.vu.lt/

Research Center SAFE ( email )

Goethe University Frankfurt
Theodor-W.-Adorno Platz 3
Frankfurt am Main, D-60629
Germany

HOME PAGE: http://safe-frankfurt.de/research/all-researchers/details/showauthor/patrick-gruening.html

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