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Asymmetric capital-tax competition, unemployment and losses from capital market integration

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Author Info
Rüdiger Pethig () (University of Siegen, Department of Economics, Hoelderlinstr. 3, 57068 Siegen, Germany)
Frieder Kolleß () (University of Siegen, Department of Economics, Hoelderlinstr. 3, 57068 Siegen, Germany)

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Abstract

In a multi-country general equilibrium economy with mobile capital and rigid-wage unemployment, countries may differ in capital endowments, production technologies and rigid wages. Governments tax capital at the source to maximize national welfare. They account for tax base responses to their tax and take as given the world-market interest rate. We specify conditions under which - in contrast to free trade with undistorted labor markets - welfare declines and unemployment increases in some countries (i) when moving from autarky to trade without taxation and/or (ii) when moving from trade without taxation to tax competition.

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File URL: http://www.uni-marburg.de/fb02/makro/forschung/magkspapers/40-2009_pethig.pdf
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Publisher Info
Paper provided by Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung) in its series MAGKS Papers on Economics with number 200940.

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Length: 31 pages
Date of creation: 2009
Date of revision:
Publication status: Forthcoming in
Handle: RePEc:mar:magkse:200940

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Related research
Keywords: capital taxation; asymmetric tax competition; rigid wages; unemployment; losses from trade;

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Find related papers by JEL classification:
E24 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution
H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
H87 - Public Economics - - Miscellaneous Issues - - - International Fiscal Issues; International Public Goods
J64 - Labor and Demographic Economics - - Mobility, Unemployment, and Vacancies - - - Unemployment: Models, Duration, Incidence, and Job Search
R13 - Urban, Rural, and Regional Economics - - General Regional Economics - - - General Equilibrium and Welfare Economic Analysis of Regional Economies
F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements

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  1. Peter Friedrich & Chang Woon Nam & Janno Reiljan, 2009. "Local Fiscal Equalization in Estonia: Is a Reform Necessary?," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
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  3. Bas Jacobs & Dirk Schindler, 2009. "On the Desirability of Taxing Capital Income to Reduce Moral Hazard in Social Insurance," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
  4. Thiess Buettner & Clemens Fuest, 2009. "The Role of the Corporate Income Tax as an Automatic Stabilizer," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
  5. Michael Stimmelmayr, 2009. "Wage Inequality in Germany: Disentangling Demand and Supply Effects," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
  6. Hans Gersbach & Noemi Hummel, 2009. "Climate Policy and Development," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
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