Why Governments should Tax Mobile Capital in the Presence of Unemployment

This file is part of IDEAS, which uses RePEc data

Why Governments should Tax Mobile Capital in the Presence of Unemployment

Author Info

Erkki Koskela ()
Ronnie Schoeb ()

Additional information is available for the following registered author(s):

Ronnie Schoeb

Abstract

This paper shows that a small open economy should levy positive source-based taxes on capital income to fight involuntary unemployment and increase welfare. A revenue-neutral tax reform which increases the capital tax rate and reduces the labour tax rate will induce firms to substitute labour for capital. Such a tax will lower marginal cost of production, increase output, and reduce unemployment as long as labour tax rate exceeds the capital tax rate. The result holds even though trade unions might succeed in subsequently increasing the net-of-tax wage rate if the elasticity of substitution between capital and labour is above a critical value which is itself below one. Independent of the elasticity of substitution, the government can promote wage moderation by increasing the personal tax credit instead of reducing the labour tax rate.

Download Info
To download:

If you experience problems downloading a file, check if you have the proper application to view it first. Information about this may be contained in the File-Format links below. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

Publisher Info
Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number CESifo Working Paper No. 175.

Download reference. The following formats are available: HTML (with abstract), plain text (with abstract), BibTeX, RIS (EndNote, RefMan, ProCite), ReDIF
Length:
Date of creation: 1998
Date of revision:
Handle: RePEc:ces:ceswps:_175

Contact details of provider:
Postal: Poschingerstrasse 5, 81679 Munich
Phone: +49 (89) 9224-0
Fax: +49 (89) 985369
Web page: http://www.cesifo.de

For technical questions regarding this item, or to correct its listing, contact: (Julio Saavedra).

Other versions of this item:

Article
- Erkki Koskela & Ronnie Schöb, 2002. "Why Governments Should Tax Mobile Capital in the Presence of Unemployment," The B.E. Journal of Economic Analysis & Policy, Berkeley Electronic Press, vol. 0(1). [Downloadable!]
Paper
- Erkki Koskela & Ronnie Schöb, . "Why Governments Should Tax Mobile Capital in the Presence of Unemployment," EPRU Working Paper Series 98-08, Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics.

Find related papers by JEL classification:
H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General
J50 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - General

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

Assaf Razin & Efraim Sadka, 1991. "International Tax Competition and Gains from Tax Harmonization," NBER Working Papers 3152, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
Other versions:
- Razin, Assaf & Sadka, Efraim, 1991. "International tax competition and gains from tax harmonization," Economics Letters, Elsevier, vol. 37(1), pages 69-76, September. [Downloadable!] (restricted)
Huizinga, Harry & Nielsen, Soren Bo, 1997. "Capital income and profit taxation with foreign ownership of firms," Journal of International Economics, Elsevier, vol. 42(1-2), pages 149-165, February. [Downloadable!] (restricted)
Other versions:
- Harry Huizinga & Soeren Bo Nielsen, . "Capital Income and Profits Taxation with Foreign Ownerwhip of Firms," EPRU Working Paper Series 95-09, Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics.
- Huizinga, H. & Nielsen, S.B., 1995. "Capital Income and Profits Taxation with Foreign Ownership of Firms," Papers 9582, Tilburg - Center for Economic Research.
Holm, Pasi & Honkapohja, Seppo & Koskela, Erkki, 1994. "A monopoly-union model of wage determination with capital and taxes: An empirical application to the Finnish manufacturing," European Economic Review, Elsevier, vol. 38(2), pages 285-303, February. [Downloadable!] (restricted)
Erkki Koskela & Ronnie Schoeb & Hans-Werner Sinn, 1998. "Pollution, Factor Taxation and Unemployment," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
Other versions:
- Erkki Koskela & Ronnie Schöb & Hans-Werner Sinn, 1998. "Pollution, Factor Taxation and Unemployment," International Tax and Public Finance, Springer, vol. 5(3), pages 379-396, July. [Downloadable!] (restricted)
Bucovetsky, Sam & Wilson, John Douglas, 1991. "Tax competition with two tax instruments," Regional Science and Urban Economics, Elsevier, vol. 21(3), pages 333-350, November. [Downloadable!] (restricted)
Koskela, Erkki & Vilmunen, Jouko, 1996. "Tax progression is good for employment in popular models of trade union behaviour," Labour Economics, Elsevier, vol. 3(1), pages 65-80, August. [Downloadable!] (restricted)
Bruce, Neil, 1992. "A Note on the Taxation of International Capital Income Flows," The Economic Record, The Economic Society of Australia, vol. 68(202), pages 217-21, September.
Other versions:
- Bruce, N., 1991. "A Note on the Taxation of International Capital Income Flows," Working Papers 91-10a, University of Washington, Department of Economics.
- Bruce, N., 1991. "A Note on the Taxation of International Capital Income Flows," Discussion Papers in Economics at the University of Washington 91-10a, Department of Economics at the University of Washington.
Eaton, B Curtis & Lipsey, Richard G, 1978. "Freedom of Entry and the Existence of Pure Profit," Economic Journal, Royal Economic Society, vol. 88(351), pages 455-69, September. [Downloadable!] (restricted)
Nash, John, 1950. "The Bargaining Problem," Econometrica, Econometric Society, vol. 18(2), pages 155-162, April. [Downloadable!] (restricted)
Ken Binmore & Ariel Rubinstein & Asher Wolinsky, 1986. "The Nash Bargaining Solution in Economic Modelling," RAND Journal of Economics, The RAND Corporation, vol. 17(2), pages 176-188, Summer. [Downloadable!] (restricted)
Guesnerie Roger & Laffont Jean-jacques, 1978. "Taxing price makers," CEPREMAP Working Papers (Couverture Orange) 7806, CEPREMAP.
Other versions:
- Guesnerie, Roger & Laffont, Jean-Jacques, 1978. "Taxing price makers," Journal of Economic Theory, Elsevier, vol. 19(2), pages 423-455, December. [Downloadable!] (restricted)
Gordon, Roger H & Bovenberg, A Lans, 1996. "Why Is Capital So Immobile Internationally? Possible Explanations and Implications for Capital Income Taxation," American Economic Review, American Economic Association, vol. 86(5), pages 1057-75, December. [Downloadable!] (restricted)
Other versions:
- Roger H. Gordon & A. Lans Bovenberg, 1994. "Why is Capital so Immobile Internationally?: Possible Explanations and Implications for Capital Income Taxation," NBER Working Papers 4796, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
- Gordon, R.H. & Bovenberg, A.L., 1994. "Why Is Capital So Immobile Internationally?: Possible Explanations and Implications for Capital Income Taxation," Working Papers 358, Research Seminar in International Economics, University of Michigan.
Gordon, Roger H, 1986. "Taxation of Investment and Savings in a World Economy," American Economic Review, American Economic Association, vol. 76(5), pages 1086-1102, December. [Downloadable!] (restricted)
Nickell, Stephen, 1997. "Unemployment and Labor Market Rigidities: Europe versus North America," Journal of Economic Perspectives, American Economic Association, vol. 11(3), pages 55-74, Summer. [Downloadable!] (restricted)
Stefan Boeters & Kerstin Schneider, 1999. "Government versus Union. The Structure of Optimal Taxation in a Unionized Labor Market," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 56(2), pages 174-, June.
Wolfram Richter & Kerstin Schneider, 2001. "Taxing Mobile Capital with Labor Market Imperfections," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
Other versions:
- Wolfram Richter & Kerstin Schneider, 2001. "Taxing Mobile Capital with Labor Market Imperfections," International Tax and Public Finance, Springer, vol. 8(3), pages 245-262, May. [Downloadable!] (restricted)

Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

Erkki Koskela & Ronnie Schöb, 2007. "How Tax Progression Affects Effort and Employment," IZA Discussion Papers 2861, Institute for the Study of Labor (IZA). [Downloadable!]
Friedrich Breyer & Andreas Haufler, 2000. "Health Care Reform: Separating Insurance from Income Redistribution," International Tax and Public Finance, Springer, vol. 7(4), pages 445-461, August. [Downloadable!] (restricted)
Other versions:
- Friedrich Breyer & Andreas Haufler, 2000. "Health Care Reform: Separating Insurance from Income Redistribution," Discussion Papers of DIW Berlin 205, DIW Berlin, German Institute for Economic Research. [Downloadable!]
Erkki Koskela & Ronnie Schöb, 2001. "Optimal Factor Income Taxation in the Presence of Unemployment," Discussion Papers 758, The Research Institute of the Finnish Economy. [Downloadable!]
Other versions:
- Koskela, Erkki & Schoeb, Ronnie, 2000. "Optimal Factor Income Taxation in the Presence of Unemployment," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
- Koskela, Erkki & Schob, Ronnie, 2002. " Optimal Factor Income Taxation in the Presence of Unemployment," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 4(3), pages 387-404. [Downloadable!] (restricted)
Werner Roeger & Jan Veld & Don Woehrmann, 2002. "Some Equity and Efficiency Considerations of International Tax Competition," International Tax and Public Finance, Springer, vol. 9(1), pages 7-31, January. [Downloadable!] (restricted)
Ronnie Schoeb, 2001. "Public Profit Sharing," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
Other versions:
- Ronnie Schöb, 2001. "Public Profit Sharing," UWO Department of Economics Working Papers 20012, University of Western Ontario, Department of Economics. [Downloadable!]
- Schob, Ronnie, 2002. "Public Profit Sharing," Kyklos, Blackwell Publishing, vol. 55(4), pages 523-41.
Koskela, Erkki, 2008. "The Effects of Labour Tax Progression under Nash Wage Bargaining and Flexible Outsourcing," IZA Discussion Papers 3501, Institute for the Study of Labor (IZA). [Downloadable!]
Riedl, Arno & van Winden, Frans, 2004. "Input versus Output Taxation in an Experimental International Economy," IZA Discussion Papers 1344, Institute for the Study of Labor (IZA). [Downloadable!]
Other versions:
- Arno Riedl & Frans van Winden, 2003. "Input versus Output Taxation in an Experimental International Economy," Tinbergen Institute Discussion Papers 03-058/1, Tinbergen Institute. [Downloadable!]
- Arno Riedl & Frans van Winden, 2003. "Input Versus Output Taxation in an Experimental International Economy," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
- Arno Riedl & Frans van Winden, 2003. "Input Versus Output Taxation In An Experimental International Economy," Levine's Bibliography 666156000000000277, UCLA Department of Economics. [Downloadable!]

Statistics

Access and download statistics

Did you know? IDEAS also covers the most complete directory of Economics departments and institutes, EDIRC.

This page was last updated on 2009-12-1.

This information is provided to you by IDEAS at the Department of Economics, College of Liberal Arts and Sciences, University of Connecticut using RePEc data on a server sponsored by the Society for Economic Dynamics.