Regions inhabited with an immobile population of disabled and able individuals compete to attract mobile firms that provide jobs. The redistributive goal of regional governments is to support the disabled, who cannot work. Able individuals may work, be involuntary unemployed because of frictions in the labour market, or choose to be voluntary unemployed. Labour force participation decisions depend on regional redistributive policies. Both the size of workforce and tax on firms affect profits and therefore, firms' location decisions. Allowing regions to engage in tax competition may be efficient. If regions cannot tax firms, they compete by implementing inefficient redistributive policies.
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Paper provided by Queen's University, Department of Economics in its series Working Papers with number
986.
Find related papers by JEL classification: H2 - Public Economics - - Taxation, Subsidies, and Revenue H7 - Public Economics - - State and Local Government; Intergovernmental Relations J6 - Labor and Demographic Economics - - Mobility, Unemployment, and Vacancies
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