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

36 Pages Posted: 18 Jan 2017 Last revised: 18 Oct 2017

See all articles by Giuliano Curatola

Giuliano Curatola

University of Siena - Department of Economics and Statistics; Leibniz Institute for Financial Research SAFE

Michael Donadelli

Leibniz Institute for Financial Research SAFE

Patrick Grüning

Bank of Lithuania - Center of Excellence for Finance and Economic Research (CEFER); Vilnius University - Faculty of Economics and Business Administration; Research Center SAFE

Date Written: October 17, 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 (October 17, 2017). SAFE Working Paper No. 163. Available at SSRN: https://ssrn.com/abstract=2896712 or http://dx.doi.org/10.2139/ssrn.2896712

Giuliano Curatola

University of Siena - Department of Economics and Statistics ( email )

Piazza San Francesco 7
Siena, Siena 53100
Italy

Leibniz Institute for Financial Research SAFE ( email )

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

Michael Donadelli (Contact Author)

Leibniz Institute for Financial Research SAFE ( email )

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

Patrick Grüning

Bank of Lithuania - Center of Excellence for Finance and Economic Research (CEFER) ( email )

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

HOME PAGE: http://www.lb.lt/en/dr-patrick-gruning

Vilnius University - Faculty of Economics and Business Administration ( email )

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

HOME PAGE: http://www.evaf.vu.lt/en/

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/researchers/researchers-details/showauthor/92-gruening.html

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