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Competing for capital when labor is heterogeneous

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  • Yasuhiro Sato

    (Graduate School of Environmental Studies, Nagoya University)

  • Jacques-Francois Thisse

    (CORE, Universite catholique de Louvain)

Abstract

This paper investigates the impacts of capital mobility and tax competition in a setting with imperfect matching between firms and workers. The small country attracts less firms than the large one but accommodates a share of the industry that exceeds its capital share -a reverse home market effect. This allows the small country to be more aggressive and to set a higher tax rate than the large one, thus implying that tax competition reduces international inequalities. However, the large country always attains a higher utility than does the small country. Our model thus encapsulates both the "importance of being small" and the "importance of being large". Last, tax harmonization benefits to the small country but is detrimental to the large one.

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Bibliographic Info

Paper provided by CIRJE, Faculty of Economics, University of Tokyo in its series CIRJE F-Series with number CIRJE-F-456.

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Length: 40 pages
Date of creation: Dec 2006
Date of revision:
Handle: RePEc:tky:fseres:2006cf456

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References

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Citations

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Cited by:
  1. Kaz Miyagiwa & Yasuhiro Sato, 2012. "Free Entry, Regulatory Competition, and Globalization," ISER Discussion Paper 0835, Institute of Social and Economic Research, Osaka University.
  2. Yu-Bong Lai, 2014. "Asymmetric tax competition in the presence of lobbying," International Tax and Public Finance, Springer, vol. 21(1), pages 66-86, February.
  3. Sebastian Krautheim & Tim Schmidt-Eisenlohr, 2009. "Heterogeneous firms, "Profit Shifting" FDI and international tax competition," Post-Print halshs-00442818, HAL.
  4. Rüdiger Pethig & Frieder Kolleß, 2009. "Asymmetric Capital-Tax Competition, Unemployment and Losses from Capital Market Integration," CESifo Working Paper Series 2795, CESifo Group Munich.
  5. repec:ebl:ecbull:v:18:y:2006:i:2:p:1-9 is not listed on IDEAS
  6. BEHRENS, Kristian & SATO, Yasuhiro, . "‘Brain drain’ without migration: capital market integration and capital-skill complementarities," CORE Discussion Papers RP -1910, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  7. OGAWA Hikaru & OSHIRO Jun & SATO Yasuhiro, 2012. "Capital Mobility—a resource curse or blessing? How, when, and for whom?," Discussion papers 12063, Research Institute of Economy, Trade and Industry (RIETI).

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