How labor market rigidities shape business taxation in a global economy?
AbstractWe investigate the impact of trade liberalization upon the taxation of capital within a context of labor market rigidities. Using a model of trade and location, we show that labor market imperfections not only strengthen tax competition but also affect the relationship between trade integration and tax policies. Capital taxation follows a J-shaped relationship with trade costs when labor markets are flexible, whereas it may increase with falling trade costs in the presence of trade unions acting as Stackelberg leaders or playing simultaneously with governments. In addition, we analyze the outcome which arises from di§erences between the various countries' labor market institutions. Trade liberalization reduces the international differences in wage and capital taxation, making the unionized country more attractive.
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Date of creation: 2010
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Tax competition; unions; capital mobility; trade integration;
This paper has been announced in the following NEP Reports:
- NEP-ACC-2010-11-27 (Accounting & Auditing)
- NEP-ALL-2010-11-27 (All new papers)
- NEP-INT-2010-11-27 (International Trade)
- NEP-LAB-2010-11-27 (Labour Economics)
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.:
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- Carl Gaigné & Stéphane Riou, 2007. "Globalization, Asymmetric Tax Competition, and Fiscal Equalization," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 9(5), pages 901-925, October.
- Nelly Exbrayat & Benny Geys, 2011.
"Trade Integration and Business Tax Differentials : Theory and Evidence from OECD Countries,"
1123, Groupe d'Analyse et de Théorie Economique (GATE), Centre national de la recherche scientifique (CNRS), Université Lyon 2, Ecole Normale Supérieure.
- Nelly Exbrayat & Benny Geys, 2011. "Trade Integration and Business Tax Differentials: Theory and Evidence from OECD Countries," Post-Print halshs-00617043, HAL.
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