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International commodity taxation in the presence of unemployment

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Author Info
MORICONI, Simone
SATO, Yasuhiro

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Abstract

This paper analyses the effect of consumption taxes on unemployment in presence of wage rigidity and compares non-cooperative tax setting under the destination and origin principle of commodity taxation. We show that, in a two country economy, consumption taxes negatively affect domestic employment and cause an employment externality which is negative under the destination and positive under the origin principle. Whereas the non-cooperative tax rate is inefficiently high under both principles, we show that, when the level of rigid wages is high, the origin principle is superior to the destination principle from the viewpoint of employment as well as social welfare.

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Publisher Info
Paper provided by Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) in its series CORE Discussion Papers with number 2006069.

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Date of creation: 01 Sep 2006
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Handle: RePEc:cor:louvco:2006069

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Related research
Keywords: commodity taxation; destination principle; origin principle and unemployment;

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Find related papers by JEL classification:
F16 - International Economics - - Trade - - - Trade and Labor Market Interactions
H87 - Public Economics - - Miscellaneous Issues - - - International Fiscal Issues; International Public Goods
J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand

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  2. Keen, Michael & Lahiri, Sajal & Raimondos-Moller, Pascalis, 2002. "Tax principles and tax harmonization under imperfect competition: A cautionary example," European Economic Review, Elsevier, vol. 46(8), pages 1559-1568, September. [Downloadable!] (restricted)
    Other versions:
  3. Brown, Charles, 1999. "Minimum wages, employment, and the distribution of income," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 32, pages 2101-2163 Elsevier. [Downloadable!] (restricted)
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    Other versions:
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  17. Ogawa, Hikaru & Sato, Yasuhiro & Tamai, Toshiki, 2006. "A note on unemployment and capital tax competition," Journal of Urban Economics, Elsevier, vol. 60(2), pages 350-356, September. [Downloadable!] (restricted)
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    Other versions:
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