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Tax Coordination and Unemployment

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  • Clemens Fuest
  • Bernd Huber

Abstract

This paper analyses the implications of unemloyment for fiscal competition and tax coordination among small open economies. Unemployment is modeled as resulting from wage bargaining. The analysis focuses on the effect of labour and capital tax co-ordination on welfare. We show that, while coordinated capital and labour tax increases unambiguously raise welfare if labour markets are competitive, different results emerge if labour markets are unionised. It turns out that co-ordinated capital and labour tax increases may reduce welfare.

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Bibliographic Info

Paper provided by Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics in its series EPRU Working Paper Series with number 97-26.

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Handle: RePEc:kud:epruwp:97-26

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  1. Oswald, Andrew J., 1993. "Efficient contracts are on the labour demand curve : Theory and facts," Labour Economics, Elsevier, vol. 1(1), pages 85-113, June.
  2. John Creedy & Ian M McDonald, 1989. "Trade Unions, wages and taxation," Fiscal Studies, Institute for Fiscal Studies, vol. 10(3), pages 50-59, August.
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  4. Huizinga, H.P. & Nielsen, S.B., 1997. "Capital income and profit taxation with foreign ownership of firms," Open Access publications from Tilburg University urn:nbn:nl:ui:12-73857, Tilburg University.
  5. WILDASIN, David E., . "Interjurisdictional capital mobility: Fiscal externality and a corrective subsidy," CORE Discussion Papers RP -831, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  6. Hersoug, Tor, 1984. "Union Wage Responses to Tax Changes," Oxford Economic Papers, Oxford University Press, vol. 36(1), pages 37-51, March.
  7. GABSZEWICZ, J. J. & van YPERSELE, T., . "Social protection and political competition," CORE Discussion Papers RP -1230, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  8. Mintz, Jack & Tulkens, Henry, 1996. "Optimality properties of alternative systems of taxation of foreign capital income," Journal of Public Economics, Elsevier, vol. 60(3), pages 373-399, June.
  9. Keen, Michael & Marchand, Maurice, 1997. "Fiscal competition and the pattern of public spending," Journal of Public Economics, Elsevier, vol. 66(1), pages 33-53, October.
  10. Bernd Huber, 1997. "Optimal Capital Income Taxes and Capital Controls in Small Open Economies," International Tax and Public Finance, Springer, vol. 4(1), pages 7-24, January.
  11. Jeremy Edwards & Michael Keen, 1994. "Tax competition and Leviathon," IFS Working Papers W94/07, Institute for Fiscal Studies.
  12. McDonald, Ian M & Solow, Robert M, 1981. "Wage Bargaining and Employment," American Economic Review, American Economic Association, vol. 71(5), pages 896-908, December.
  13. Palokangas, Tapio, 1987. "Optimal Taxation and Employment Policy with a Centralized Wage Settin g," Oxford Economic Papers, Oxford University Press, vol. 39(4), pages 799-812, December.
  14. Oates, Wallace E. & Schwab, Robert M., 1988. "Economic competition among jurisdictions: efficiency enhancing or distortion inducing?," Journal of Public Economics, Elsevier, vol. 35(3), pages 333-354, April.
  15. Bucovetsky, Sam & Wilson, John Douglas, 1991. "Tax competition with two tax instruments," Regional Science and Urban Economics, Elsevier, vol. 21(3), pages 333-350, November.
  16. Lockwood, Ben, 1990. "Tax Incidence, Market Power, and Bargaining Structure," Oxford Economic Papers, Oxford University Press, vol. 42(1), pages 187-209, January.
  17. Brennan,Geoffrey & Buchanan,James M., 2006. "The Power to Tax," Cambridge Books, Cambridge University Press, number 9780521027922, December.
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