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Imperfect factor mobility, unemployment, and the short-period incidence of a capital income tax

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  • José Manuel González-Páramo

    (Banco Mundial Europeo)

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    Abstract

    A crucial feature of the short-run perspective in many policy-relevant issues is the existence of unemployment due to wage rigidities. At the same time, imperfections in the degree of factor mobility between sectors or regions determine the nature and flexibility of the responses of the economy to exogenous shocks. It is no wonder then that the incidence of taxation upon employment and income distribution is a central preoccupation of the fiscal authorities. In this paper we explore the structure of the incidence and the economic effects of a selective capital income tax in a neoclassical, two-sector, two-factor, short-period model in which the existence of a sticky wage that exceeds the maximum level consistent with full-employment leads to unemployment of labour .

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    Bibliographic Info

    Article provided by IEF in its journal Hacienda Pública Española/Revista de Economía Pública.

    Volume (Year): 172 (2005)
    Issue (Month): 1 (June)
    Pages: 23-59

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    Handle: RePEc:hpe:journl:y:2005:v:172:i:1:p:23-59

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    Keywords: Tax incidence; capital mobility; unemployment; general equilibrium;

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    1. Harry G. Johnson, 1969. "Minimum Wage Laws: A General Equilibrium Analysis," Canadian Journal of Economics, Canadian Economics Association, vol. 2(4), pages 599-604, November.
    2. Das, Satya P., 1981. "Effects of foreign investment in the presence of unemployment," Journal of International Economics, Elsevier, vol. 11(2), pages 249-257, May.
    3. Blanchard, Olivier Jean, 1979. "Wage Indexing Rules and the Behavior of the Economy," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 87(4), pages 798-815, August.
    4. Don Fullerton & Gilbert E. Metcalf, 2001. "Tax Incidence," Discussion Papers Series, Department of Economics, Tufts University 0106, Department of Economics, Tufts University.
    5. Gonzalez-Paramo, Jose Manuel, 1993. "Tax Shifting through Mobility in the Theory of Tax Incidence," Public Finance = Finances publiques, , , vol. 48(3), pages 315-28.
    6. Balassa, Bela, 1982. "Disequilibrium analysis in developing economies: An overview," World Development, Elsevier, vol. 10(12), pages 1027-1038, December.
    7. F. R. Casas, 1984. "Imperfect Factor Mobility: A Generalization and Synthesis of Two-Sector Models of International Trade," Canadian Journal of Economics, Canadian Economics Association, vol. 17(4), pages 747-61, November.
    8. Brecher, Richard A, 1974. "Minimum Wage Rates and the Pure Theory of International Trade," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 88(1), pages 98-116, February.
    9. Ronald B. Gold, 1968. "Interregional Factor Transfers and Regional Unemployment," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 76, pages 246.
    10. Brecher, Richard A., 1974. "Optimal commercial policy for a minimum-wage economy," Journal of International Economics, Elsevier, vol. 4(2), pages 139-149, May.
    11. Helpman, Elhanan, 1976. "Macroeconomic Policy in a Model of International Trade with a Wage Restriction," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 17(2), pages 262-77, June.
    12. Mussa, Michael, 1978. "Dynamic Adjustment in the Heckscher-Ohlin-Samuelson Model," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 86(5), pages 775-91, October.
    13. Behuria, Sutanu, 1984. "Taxation and employment in general equilibrium : A two-sector analysis," Journal of Development Economics, Elsevier, vol. 14(1), pages 219-239.
    14. Mussa, Michael, 1982. "Imperfect factor mobility and the distribution of income," Journal of International Economics, Elsevier, vol. 12(1-2), pages 125-141, February.
    15. Grossman, Gene M., 1983. "Partially mobile capital : A general approach to two-sector trade theory," Journal of International Economics, Elsevier, vol. 15(1-2), pages 1-17, August.
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