Assume that the payroll taxes were cut by half in Gothenburg in 2005. You have b

Question

Assume that the payroll taxes were cut by half in Gothenburg in 2005. You have been appointed as an econometrician to evaluate the employment effects of the reform. The table below shows the employment rates in Gothenburg and Stockholm in 2004 and 2006: a) Calculate the most credible estimate of the reform effect. What is the estimator called? What is the key identifying assumption for giving the estimate a causal interpretation? Explicitly discuss in terms of payroll tax example. b) Suppose that you have individual data on employment and some other characteristics for all inhabitants in Gothenburg and Stockholm for the years 2004 and 2006. You wish to use this information to estimate the effect from a) using a linear regression model. Write down the regression model that you would estimate and describe which coefficient that corresponds to the effect from a). c) Suppose that later you obtain the following employment rates in 2002: Assume that no reforms took place in Goth

Explanation / Answer

I am only going to give you the directions here on how to proceed. Exact answer you have to find out yourself

We can perform linear regression using following syntax in R

data <- read.csv(“file path”, sep=“”)

fit <- lm(Y~X1+X2+X3 , data = data) ## Assuming X1, X2, X3 are the characteristics

summary(fit)

After getting the linear regression fit equation we can find the missing values easily values

Summary gives us the p value attached to the coefficient population and intercept which helps us to determine the significance of parameter in contributing to our model. High p value means low significance.

Taxes were cut in half so we can easily say that people spending increases in Goods and Services leading to the increase in their production which in turn help in improving employment rate. From the available data you need to check which factors play crucial role.

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