Vol. 26, No. 1

Martin Jacob and Jan Södersten:
Mitigating Shareholder Taxation in Small Open Economies (pp. 1–12)

This article reconsiders the role of dividend taxation and its effect on the cost of capital for small firms. Using a simple portfolio model for small open economies, we show that an isolated increase in dividend taxes on large companies unambiguously decreases the required rate of return on small companies. A dividend tax increase for both large and small companies may moreover lead to the counter-intuitive result of decreasing the cost of capital for small firms. For different small open economies, we further provide statistics on the correlation between the return of large and small firms that drives the counter-intuitive result.

(JEL: H24, H25)

Anders Bredahl Kock and Timo Teräsvirta:
Forecasting the Finnish Consumer Price Inflation Using Artificial Neural Network Models and Three Automated Model Selection Techniques (pp. 13–24)

This paper is concerned with forecasting the Finnish inflation rate. It is being forecast using linear autoregressive and nonlinear neural network models. Perhaps surprisingly, building the models on the nonstationary level series and forecasting with them produces forecasts with a smaller root mean square forecast error than doing the same with differenced series. The paper also
contains pairwise comparisons between the benchmark forecasts from linear autoregressive models and ones from neural network models using Wilcoxon’s signed-rank test.

(JEL: C22, C45, C51, C52, C53)

Tor Eriksson:
Macroeconomic Shocks and Firms’ Labor Adjustment (pp. 25–35)

This article discusses some recent research which aims at producing evidence on how firms adjust their employment in response to output shocks using micro-level data and with a particular focus on the relationship between worker and job flows. The evidence presented is mainly based on Danish data, but a brief discussion of cross-country differences and similarities in firmlevel labor adjustment is also provided. For Denmark, remarkable long-term stability in firms’ labor adjustment technologies is observed and the cross-country comparisons reveal striking similarities between countries with very diverse labor market institutions.

(JEL: E24, J23, J63)

Finnish Economic Papers 1/2013