Corporate Tax Policy and Unemployment in Europe: An Applied General Equilibrium Analysis
AbstractAbstract This paper analyses the impact of corporate taxes on structural unemployment, using an applied general equilibrium model for the European Union. We find that the unemployment and welfare effects of corporate taxes differ considerably among European countries. The magnitude of these effects rises in particular in the broadness of the corporate tax base of a country, and the strength of international spillover effects through foreign direct investment. The effect on unemployment is smaller if the substitution elasticity between labour and capital is large, if international spillover effects operate primarily via multinational profit shifting, and with small labour market imperfections. Although the effect of corporate taxes on unemployment may be smaller than the effect of labour and value-added taxes (e.g. under relatively strong real wage resistance), the welfare costs of corporate taxation are typically larger for most European countries under plausible parameters, especially under strong international spillovers. Copyright 2009 The Authors.
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Bibliographic InfoArticle provided by Wiley Blackwell in its journal World Economy.
Volume (Year): 32 (2009)
Issue (Month): 9 (09)
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Web page: http://www.blackwellpublishing.com/journal.asp?ref=0378-5920
Other versions of this item:
- Leon Bettendorf & Albert van der Horst & Ruud A. de Mooij, 2007. "Corporate Tax Policy and Unemployment in Europe: An Applied General Equilibrium Analysis," Tinbergen Institute Discussion Papers 07-056/2, Tinbergen Institute.
- D58 - Microeconomics - - General Equilibrium and Disequilibrium - - - Computable and Other Applied General Equilibrium Models
- H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
- J64 - Labor and Demographic Economics - - Mobility, Unemployment, and Vacancies - - - Unemployment: Models, Duration, Incidence, and Job Search
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