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Asymmetric Capital-Tax Competition, Unemployment and Losses from Capital Market Integration

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  • Rüdiger Pethig
  • Frieder Kolleß

Abstract

In a multi-country general equilibrium economy with mobile capital and rigid-wage unemployment, countries may differ in capital endowments, production technologies and rigid wages. Governments tax capital at the source to maximize national welfare. They account for tax base responses to their tax and take as given the world-market interest rate. We specify conditions under which - in contrast to free trade with undistorted labor markets - welfare declines and unemployment increases in some countries (i) when moving from au-tarky to trade without taxation and/or (ii) when moving from trade without taxation to tax competition.

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File URL: http://www.cesifo-group.de/portal/page/portal/DocBase_Content/WP/WP-CESifo_Working_Papers/wp-cesifo-2009/wp-cesifo-2009-09/cesifo1_wp2795.pdf
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Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 2795.

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Date of creation: 2009
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Handle: RePEc:ces:ceswps:_2795

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Keywords: capital taxation; asymmetric tax competition; rigid wages; unemployment; losses from trade;

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  1. Wolfgang Eggert & Laszlo Goerke, . "Fiscal Policy, Economic Integration and Unemployment," EPRU Working Paper Series 02-05, Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics.
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  15. Peralta, Susana & van Ypersele, Tanguy, 2005. "Factor endowments and welfare levels in an asymmetric tax competition game," Journal of Urban Economics, Elsevier, vol. 57(2), pages 258-274, March.
  16. Nickell, Stephen J, 1990. "Unemployment: A Survey," Economic Journal, Royal Economic Society, vol. 100(401), pages 391-439, June.
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