A highly debated recent Swedish policy initiative was to reduce VAT-rates (i.e.

Question

A highly debated recent Swedish policy initiative was to reduce VAT-rates (i.e. taxes paid by firms on the value added of what they sell) on restaurants from the beginning of 2012. The motivation was (primarily) as a means to increase employment in the restaurant industry and thereby reduce youth unemployment. Suppose that you have yearly data on employment by age group and industry across time, in Sweden and in other European countries. Discuss how you would use these data to estimate the impact of the policy on the outcomes of interest. Suggest how you would proceed to assess the credibility of the estimates, and discuss the limitations of your study.

Explanation / Answer

Using the given data, we see that which age group having employment rate is high or which age group having employment rate is low. Many times young agesearching jobs, so unemployment is high due to less availability of job. A data series of industry is also there with respect t time and this shows that how many jobs are required in a year. If industry having more jobs to give young age group, then its reduce the unemployment rate which directly impact the growth rate and per capita income.

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