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Why Governments Should Tax Mobile Capital in the Presence of Unemployment Author info | Abstract | Publisher info | Download info | Related research | Statistics Erkki Koskela
Ronnie Schöb
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This paper shows that a small open economy should levy positive source-based taxes on capital income to fight involuntary unemployment and increase welfare. A revenue-neutral tax reform which increases the capital tax rate and reduces the labour tax rate will induce firms to substitute labour for capital. Even though trade unions might succeed in subsequently increasing the net-of-tax wage rate, such a tax reform will lower marginal cost of production, increase output, and reduce unemployment as long as the labour tax rate exceeds the capital tax rate if elasticity of substitution is above a critical value which is itself below one. Independent of the elasticity of substitution, the government can promote wage moderation by increasing the personal tax credit instead of reducing the labour tax rate.
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Paper provided by Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics in its series EPRU Working Paper Series with number
98-08.
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Handle: RePEc:kud:epruwp:98-08Contact details of provider: Postal: Øster Farimagsgade 5, Building 26, DK-1353 Copenhagen K., Denmark Phone: (+45) 3532 4411 Fax: +45 35 32 30 00 Web page: http://www.econ.ku.dk/epru/ More information through EDIRC
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References listed on IDEAS 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.: Assaf Razin & Efraim Sadka, 1991.
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NBER Working Papers
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Other versions: Huizinga, Harry & Nielsen, Soren Bo, 1997.
"Capital income and profit taxation with foreign ownership of firms ,"
Journal of International Economics ,
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Other versions: Holm, Pasi & Honkapohja, Seppo & Koskela, Erkki, 1994.
"A monopoly-union model of wage determination with capital and taxes: An empirical application to the Finnish manufacturing ,"
European Economic Review ,
Elsevier, vol. 38(2), pages 285-303, February.
[Downloadable!] (restricted)
Erkki Koskela & Ronnie Schoeb & Hans-Werner Sinn, 1998.
"Pollution, Factor Taxation and Unemployment ,"
CESifo Working Paper Series
CESifo Working Paper No. , CESifo Group Munich.
[Downloadable!]
Other versions: Bucovetsky, Sam & Wilson, John Douglas, 1991.
"Tax competition with two tax instruments ,"
Regional Science and Urban Economics ,
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[Downloadable!] (restricted)
Koskela, Erkki & Vilmunen, Jouko, 1996.
"Tax progression is good for employment in popular models of trade union behaviour ,"
Labour Economics ,
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Bruce, Neil, 1992.
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The Economic Record ,
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Other versions: Eaton, B Curtis & Lipsey, Richard G, 1978.
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Nash, John, 1950.
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Econometrica ,
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Ken Binmore & Ariel Rubinstein & Asher Wolinsky, 1986.
"The Nash Bargaining Solution in Economic Modelling ,"
RAND Journal of Economics ,
The RAND Corporation, vol. 17(2), pages 176-188, Summer.
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Guesnerie Roger & Laffont Jean-jacques, 1978.
"Taxing price makers ,"
CEPREMAP Working Papers (Couverture Orange)
7806, CEPREMAP.
Other versions: Gordon, Roger H & Bovenberg, A Lans, 1996.
"Why Is Capital So Immobile Internationally? Possible Explanations and Implications for Capital Income Taxation ,"
American Economic Review ,
American Economic Association, vol. 86(5), pages 1057-75, December.
[Downloadable!] (restricted)
Other versions:
Roger H. Gordon & A. Lans Bovenberg, 1994.
"Why is Capital so Immobile Internationally?: Possible Explanations and Implications for Capital Income Taxation ,"
NBER Working Papers
4796, National Bureau of Economic Research, Inc.
[Downloadable!] (restricted) Gordon, R.H. & Bovenberg, A.L., 1994.
"Why Is Capital So Immobile Internationally?: Possible Explanations and Implications for Capital Income Taxation ,"
Working Papers
358, Research Seminar in International Economics, University of Michigan.
Gordon, Roger H, 1986.
"Taxation of Investment and Savings in a World Economy ,"
American Economic Review ,
American Economic Association, vol. 76(5), pages 1086-1102, December.
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Nickell, Stephen, 1997.
"Unemployment and Labor Market Rigidities: Europe versus North America ,"
Journal of Economic Perspectives ,
American Economic Association, vol. 11(3), pages 55-74, Summer.
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Stefan Boeters & Kerstin Schneider, 1999.
"Government versus Union. The Structure of Optimal Taxation in a Unionized Labor Market ,"
FinanzArchiv: Public Finance Analysis ,
Mohr Siebeck, Tübingen, vol. 56(2), pages 174-, June.
Wolfram Richter & Kerstin Schneider, 2001.
"Taxing Mobile Capital with Labor Market Imperfections ,"
CESifo Working Paper Series
CESifo Working Paper No. , CESifo Group Munich.
[Downloadable!]
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references Cited by : (explanations , 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.)
Friedrich Breyer & Andreas Haufler, 2000.
"Health Care Reform: Separating Insurance from Income Redistribution ,"
International Tax and Public Finance ,
Springer, vol. 7(4), pages 445-461, August.
[Downloadable!] (restricted)
Other versions: Werner Roeger & Jan Veld & Don Woehrmann, 2002.
"Some Equity and Efficiency Considerations of International Tax Competition ,"
International Tax and Public Finance ,
Springer, vol. 9(1), pages 7-31, January.
[Downloadable!] (restricted)
Koskela, Erkki & Schoeb, Ronnie, 2000.
"Optimal Factor Income Taxation in the Presence of Unemployment ,"
CESifo Working Paper Series
CESifo Working Paper No. , CESifo Group Munich.
[Downloadable!]
Other versions:
Erkki Koskela & Ronnie Schöb, 2001.
"Optimal Factor Income Taxation in the Presence of Unemployment ,"
Discussion Papers
758, The Research Institute of the Finnish Economy.
[Downloadable!] Koskela, Erkki & Schob, Ronnie, 2002.
" Optimal Factor Income Taxation in the Presence of Unemployment ,"
Journal of Public Economic Theory ,
Association for Public Economic Theory, vol. 4(3), pages 387-404.
[Downloadable!] (restricted) Erkki Koskela & Ronnie Schöb, 2007.
"How Tax Progression Affects Effort and Employment ,"
IZA Discussion Papers
2861, Institute for the Study of Labor (IZA).
[Downloadable!]
Ronnie Schoeb, 2001.
"Public Profit Sharing ,"
CESifo Working Paper Series
CESifo Working Paper No. , CESifo Group Munich.
[Downloadable!]
Other versions:
Ronnie Schöb, 2001.
"Public Profit Sharing ,"
UWO Department of Economics Working Papers
20012, University of Western Ontario, Department of Economics.
[Downloadable!] Schob, Ronnie, 2002.
"Public Profit Sharing ,"
Kyklos ,
Blackwell Publishing, vol. 55(4), pages 523-41.
Koskela, Erkki, 2008.
"The Effects of Labour Tax Progression under Nash Wage Bargaining and Flexible Outsourcing ,"
IZA Discussion Papers
3501, Institute for the Study of Labor (IZA).
[Downloadable!]
Riedl, Arno & van Winden, Frans, 2004.
"Input versus Output Taxation in an Experimental International Economy ,"
IZA Discussion Papers
1344, Institute for the Study of Labor (IZA).
[Downloadable!]
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