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How labor market rigidities shape business taxation in a global economy?

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Author Info

  • Nelly Exbrayat

    ()
    (CERDI - Centre d'études et de recherches sur le developpement international - CNRS : UMR6587 - Université d'Auvergne - Clermont-Ferrand I)

  • Carl Gaigné

    (INRA-ESR - Unité d'économie et de sociologie rurales - INRA)

  • Stéphane Riou

    (GATE Lyon Saint-Etienne - Groupe d'analyse et de théorie économique - CNRS : UMR5824 - Université Lumière - Lyon II - Ecole Normale Supérieure Lettres et Sciences Humaines)

Abstract

We 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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Bibliographic Info

Paper provided by HAL in its series Post-Print with number halshs-00537021.

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Date of creation: 2010
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Handle: RePEc:hal:journl:halshs-00537021

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Related research

Keywords: Tax competition; unions; capital mobility; trade integration;

References

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  1. 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.
  2. Manuel Leite-Monteiro & Maurice Marchand & Pierre Pestieau, 2003. "Employment Subsidy with Capital Mobility," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 5(2), pages 327-344, 04.
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Cited by:
  1. 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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