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The winner gives it all: Unions, tax competition and offshoring

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Author Info
Hyun-Ju Koh
Ferdinand Mittermaier
Abstract

This paper analyzes competition for capital between welfare-maximizing gov- ernments in a framework with agglomeration tendencies and asymmetric union- ization. We find that a unionized country's government finds it optimal to use tax policy to induce industry to relocate towards a location with a competitive labor market instead of realizing the benefits from higher wage income while exporting part of the wage burden to foreign consumers. Via the tax regime effect, which favors the factor capital, and the efficiency effect, consumers and producers alike benefit from off-shoring industry towards a low-cost country. Our result qualifies first intuition that defending high wage industries is beneficial to a country as part of the associated cost is shifted to foreign consumers.

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File URL: http://www.bgpe.de/texte/DP/079_koh.pdf
File Format: application/pdf
File Function: First version, 2009
Download Restriction: no

Publisher Info
Paper provided by Bavarian Graduate Program in Economics (BGPE) in its series Working Papers with number 079.

Download reference. The following formats are available: HTML (with abstract), plain text (with abstract), BibTeX, RIS (EndNote, RefMan, ProCite), ReDIF
Length: 29 pages
Date of creation: Aug 2009
Date of revision:
Handle: RePEc:bav:wpaper:079_koh

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Web page: http://www.bgpe.de/
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Related research
Keywords: tax competition; trade unions; agglomeration;

Find related papers by JEL classification:
F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies
F16 - International Economics - - Trade - - - Trade and Labor Market Interactions
F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
H73 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Interjurisdictional Differentials and Their Effects
J51 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - Trade Unions: Objectives, Structure, and Effects

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This page was last updated on 2009-12-4.

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