Jaanika Meriküll

The Impact of Innovation on Employment

This paper investigates the implications of innovation on employment at the firm and industry levels using Estonian data. The paper contributes to the pertinent literature in two respects. First, in contrast to most other studies, which use data from developed and technologically leading countries, it analyzes data from a catching-up country undergoing rapid economic development. Second, regarding the nature of the data, we propose a novel dynamic estimation strategy based on community innovation surveys (CISs). Our results indicate that innovation positively affects employment growth, resulting from the strong effect of process innovation on employment in medium and low-tech industries. However, at the industry level, the effect on net employment vanishes.

WHY DO INDIVIDUALS EVADE PAYROLL AND INCOME TAXATION IN ESTONIA

This paper employs micro-level data to determine the factors characterizing individuals who evade payroll and income taxation in Estonia. Using logit estimation on three different cross-sectional datasets, we estimate the marginal effects of different individual characteristics on tax evasion. The three datasets give broadly analogous results. Payroll and income tax evasion is most prevalent in small firms and in the construction and agricultural sectors. Evasion is more common among individuals who work part-time, are of non-Estonian ethnicity, have relatively short education, earn a low income and are men. Tax evasion is more frequent among the young and the elderly than among the middle-aged. There are clear regional differences. The overall picture is that the relatively disenfranchised are most likely to evade payroll and income taxation in Estonia.

Gross Profit Taxation Versus Distributed Profit Taxation and Firm Performance: Effects of Estonia’s Corporate Income Tax Reform

Systems of profit taxation are undergoing continuous change and are subject to numerous studies. This paper estimates the effect of the corporate tax reform in Estonia in the year 2000, a reform that was unique anywhere. This reform nullified the taxation of retained earnings and retained the corporate income tax only on distributed profits. We estimate the effect of the reform on firms’ capital structure, liquidity, investments and productivity. The effect of the reform is identified by comparing the performance of Estonian firms that were affected with that of firms from Latvia and Lithuania, the two other Baltic states, which are economically fairly similar to Estonia and have correlated business cycles. We use firm-level financial data and the difference in differences and propensity score matching methods for our analysis. The results show that the corporate tax reform has resulted in increased holdings of liquid assets and lower use of debt financing; these results can be seen especially among the smaller companies affected by the liquidity constraints. These developments have contributed positively to firms’ survival during the recent global economic crisis. A positive effect on investment and labour productivity has also been found, especially among companies in the services sector. The results imply that distributed profit taxation schemes may have significant positive effects on economic development and firms’ survival.

One Currency, One Price? Euro Changeover‐Related Inflation in Estonia

This paper studies euro changeover-related inflation using disaggregated price level data. The difference-in-differences approach is used and the control group for the treatment country, Estonia, is built from 12 euro area countries. The Nielsen Company disaggregated price data are employed at product, brand and shop-type level. The results indicate that while the overall inflationary effect of euro adoption was modest, the effects were significantly different across various market segments. Changeover-related inflation was higher for products that were relatively cheaper than the euro area average. Inflationary effects were stronger in smaller shops. JEL Classification: D49, P46, E58

Perceptions of Unreported Economic Activities in Baltic Firms: Individualistic and Non-individualistic Motives

Purpose — The chapter assesses the linkages between unreported economic activities and different individualistic and non-individualistic motives as perceived by firm management.Design/methodology/approach — The empirical research is based on a survey of the management of firms operating in the Baltic States. The survey contains information on the perceived extent of unreported activities and on a large number of firm-, sector-, and country-specific factors. A principal component analysis identifies clusters of motives for unreported activity. Regression analyses ascertain the importance of motives individually and as principal components on the extent of unreported activities.Findings — Both individualistic and non-individualistic motives are important for the prevalence of unreported activities. The individualist motives refer to the management being solely profit-oriented and self-interested. Among possible non-individualist motives, measures of government performance and perceptions of reciprocity towards the government appear to play important roles for the extent of unreported activities, but broader societal norms may also play a role.Research limitations/implications — The study considers the perceptions that managers have of unreported activities and other features. These perceptions are subjective and subject to substantial uncertainty. All results should be interpreted in light of the subjective nature of the survey answers.Social implications — Taken literally, the results suggest that stronger government performance is associated with a reduction in unreported activities, at least as perceived by the management. Broader societal developments may also be of importance.Originality/value — The inclusion of variables capturing individualistic as well as non-individualistic motives gives a comprehensive picture of factors behind unreported activities. We employ principal component analysis which allows us to cluster individual survey answers and to produce composite measures of different explanatory factors.

Macroeconomic effects of zero corporate income tax on retained earnings

Abstract International tax competition has led to a lowering of corporate tax rates worldwide. Estonia was the first country to reduce the tax rate on retained earnings to zero, while distributed profits remained taxed at the pre-reform level. This paper seeks to analyse the effects of this unique tax reform implemented in year 2000. We apply a neoclassical exogenous growth general equilibrium model with an extension for endogenous corporate finance. Our findings indicate that the reform had a strong positive effect on capital accumulation and a modest positive effect on output and consumption, while preferential treatment of retained earnings increased equity finance and reduced debt finance.

Support for Evolution in the Knowledge-Based Economy:Demand for PhDs in Estonia

Abstract The doctoral workforce globally constitutes a rather small segment of the labour market. However, PhDs provide crucial input for educational and R&D activities, traditionally through employment in academia, and nowadays increasingly in the public and private sectors. This paper aims to estimate the need for new PhDs in the Estonian academic, public, and private sectors for the period 2007–2012. Need in the academic and public sectors is estimated by a survey of employers (e.g. universities, research institutes, ministries); private sector need is derived from forecasted R&D expenditure in the business sector. Results show that expected demand for PhDs is significantly lower in the public and private sectors than in academia. Total demand over all three sectors is rather high, annually more than 10% of the number of PhDs, caused both by high replacement demand from upcoming retirements and by growth demand. The policy implication of our results is that planned increase in PhDs should correspond with other developments in educational and R&D policy.

Do you get what you ask? The gender gap in desired and realised wages

This paper will study the gender wage gap in desired wages, realised wages and reservation wages. The notion of desired wages shows workersi?½ first bet to potential employers during the job-search process. Two datasets are employed, the electronic job-search portal database, where individuals signal their desired wages, and the labour force survey, where realised wages and reservation wages are reported. The Oaxaca-Ransom decomposition is implemented to investigate the contribution of characteristics and coefficients to the gender gap. It is found that: (1) The unexplained gender wage gap is 22i?½25% in desired and realised wages. (2) The unexplained gender wage gap is much larger in desired wages than in reservation wages for unemployed individuals showing womeni?½s higher disutility from unemployment. (3) Womeni?½s lower desired wages are revised up rather than meni?½s higher desired wages being revised down on the job. The results suggest that women are more risk averse in wage bargaining and self-select into occupations and industries with stable employment

International Technology Diffusion

This paper investigates the effect of foreign research and development (R&D) stock on the productivity of Central and Eastern European (CEE) countries. We employ industry-level panel data on twenty-two manufacturing industries from six CEE countries from 1995 to 2007. The findings indicate that foreign R&D contributes significantly to productivity in CEE countries—foreign R&D stock elasticities of productivity are around ten times greater than those of the industrys internal R&D. The results are robust to various measures of productivity, while the strongest diffusion of technology occurs through imports and not through intermediate imports or foreign direct investment. The effect of R&D on productivity growth is greater in medium-tech industries where the level of productivity is closest to that of developed economies. There is also remote evidence of the role of human capital in the better absorption of foreign R&D.

The Effect of Innovation on Skill Upgrading in Midtransition: Microeconometric Evidence from Estonia

Technological change has affected skill upgrading extensively in many developed economies since 1970s. The evidence on the same relationship in catching-up economies is rather sparse, but confirms usually the relevance of technological change on skill demand. This chapter investigates the effect of innovation on skill augmenting in midtransition and tests whether this effect has been magnified by trade activities or by FDI. The paper uses microdata of third Estonian community innovation survey (CIS 3) merged with business register data. It is found that innovation has economically small and statistically insignificant effect on demand for tertiary-educated workers. Exporting to technologically advanced countries diffuses technology and increases demand for tertiary-educated workers, while foreign ownership weakens the effect of innovation on skills. These results indicate that there are presumably other more important factors determining skill demand in postcommunist CEE countries. Technological changes have presumably altered job tasks, but the effect on demand for tertiary-educated workers seems to have been weaker in the countries under transition than in developed high-income countries.