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Public Goods, Unemployment and Policy Coordination

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Author Info

  • Aronsson, Thomas

    ()
    (Department of Economics, Umeå University)

  • Wehke, Sven

    ()
    (Otto-von-Guericke-University Magdeburg, Faculty of Economics and Management)

Abstract

Earlier literature on tax competition and policy coordination typically assumes that the labor market is competitive; a description less suitable for Europe, where trade unions have had a strong position in the labor market for a long time. This paper concerns factor income taxation and public good provision in small open economies characterized by capital mobility and imperfect competition in the labor market. We assume that each national government collects public revenues via taxes on labor, capital and profit income, and that the revenues are spent on a public consumption good and a public input good, where the latter enters the economic system in terms of an `externality production factor'. The overall purposes are to characterize the tax and expenditure policies, if decided upon at the national level, and analyze the welfare effects of policy coordination with respect to taxes and public expenditures. Among the results, we show that tax coordination contributes to higher welfare if it reduces the net interest rate and the wage rate, and that the relative overprovision of the public input good derived by Keen and Marchand (1997) in the context of a competitive economy may no longer hold, if the labor market is non-competitive.

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Bibliographic Info

Paper provided by Umeå University, Department of Economics in its series Umeå Economic Studies with number 700.

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Length: 28 pages
Date of creation: 24 Nov 2006
Date of revision:
Handle: RePEc:hhs:umnees:0700

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Postal: Department of Economics, Umeå University, S-901 87 Umeå, Sweden
Phone: 090 - 786 61 42
Fax: 090 - 77 23 02
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Web page: http://www.econ.umu.se/
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Keywords: optimal taxation; wage bargaining; public goods; policy coordination;

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References

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  7. KEEN, Michael & MARCHAND, Maurice, 1996. "Fiscal Competition and the Pattern of Public Spending," CORE Discussion Papers 1996001, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
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Citations

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Cited by:
  1. Aronsson, Thomas & Wehke, Sven, 2006. "Public Goods, Unemployment and Policy Coordination," UmeÃ¥ Economic Studies 700, Umeå University, Department of Economics.
  2. Sven Wehke, 2008. "Fighting Tax Competition in the Presence of Unemployment: Complete versus Partial Tax Coordination," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 64(1), pages 33-62, March.
  3. Martinez, Diego & Sjögren, Tomas, 2013. "Can Labor Market Imperfections Cause Overprovision of Public Inputs?," UmeÃ¥ Economic Studies 858, Umeå University, Department of Economics.
  4. Thomas Eichner & Thorsten Upmann, 2012. "Labor markets and capital tax competition," International Tax and Public Finance, Springer, vol. 19(2), pages 203-215, April.
  5. Gillet, Holger & Pauser, Johannes, 2014. "Efficiency in public input provision in two asymmetric jurisdictions with imperfect labour markets," IAB Discussion Paper 201411, Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany].
  6. Rüdiger Pethig & Frieder Kolleß, 2009. "Asymmetric capital-tax competition, unemployment and losses from capital market integration," MAGKS Papers on Economics 200940, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).
  7. Pauser, Johannes, 2013. "Capital mobility, imperfect labour markets, and the provision of public goods," IAB Discussion Paper 201309, Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany].
  8. Yongzheng Liu & Jorge Martinez-Vazquez, 2011. "Public Input Competition, Stackelberg Equilibrium and Optimality," International Center for Public Policy Working Paper Series, at AYSPS, GSU paper1123, International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University.
  9. Matsumoto, Mutsumi & Feehan, James P., 2010. "Capital-tax financing and scale economies in public-input production," Regional Science and Urban Economics, Elsevier, vol. 40(2-3), pages 116-121, May.
  10. Till Gross, 2013. "Capital Tax Competition and Dynamic Optimal Taxation," Carleton Economic Papers 13-08, Carleton University, Department of Economics.

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