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Capital tax competition and search unemployment

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  • Yasuhiro Sato

Abstract

Unemployment arising from job search and recruiting friction is incorporated in a tax competition model with multiple jurisdictions. Due to the matching externality, for each jurisdiction, the revenue from a job opening does not coincide with its cost. Therefore, capital taxation, which can be regarded as the export of jobs, causes positive or negative externality. When the revenue is smaller than the cost, capital taxation generates negative externality, which implies that local governments impose a too high capital tax rate and local public goods are provided in excess. It is also shown that an improvement in the efficiency of the matching process raises the capital tax levels chosen by local governments. Resumen Se incorpora el desempleo resultante de la búsqueda de empleo y fricciones por contratación a un modelo de competencia de impuestos con jurisdicciones múltiples. Debido a la externalidad correspondiente, para cada jurisdicción, los ingresos de una oferta de empleo no coinciden con su costo. Por tanto, los impuestos sobre el capital, que pueden ser considerados como la exportación de empleos, causa externalidades positivas o negativas. Cuando el ingreso es mejor que el costo, los impuestos sobre el capital generan una externalidad negativa, lo cual implica que los gobiernos locales imponen una tasa de impuestos sobre el capital demasiado elevada y se provee un exceso de servicios públicos locales. Se muestra también que una mejora en la eficiencia del proceso de correspondencia aumenta los niveles de impuestos sobre el capital elegidos por los gobiernos locales.

Suggested Citation

  • Yasuhiro Sato, 2009. "Capital tax competition and search unemployment," Papers in Regional Science, Wiley Blackwell, vol. 88(4), pages 749-764, November.
  • Handle: RePEc:bla:presci:v:88:y:2009:i:4:p:749-764
    DOI: 10.1111/j.1435-5957.2009.00236.x
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    File URL: https://doi.org/10.1111/j.1435-5957.2009.00236.x
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    References listed on IDEAS

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    Cited by:

    1. Keisuke Kawata, 2013. "Capital market integration and optimal employment protection policies," IDEC DP2 Series 3-9, Hiroshima University, Graduate School for International Development and Cooperation (IDEC).
    2. MORITA Tadashi & SAWADA Yukiko & YAMAMOTO Kazuhiro, 2016. "Subsidy Competition, Imperfect Labor Market, and Endogenous Entry of Firms," Discussion papers 16096, Research Institute of Economy, Trade and Industry (RIETI).
    3. Hikaru Ogawa & Yasuhiro Sato & Toshiki Tamai, 2016. "Who gains from capital market integration? Tax competition between unionized and non‐unionized countries," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 49(1), pages 76-110, February.
    4. Yuya Kikuchi & Toshiki Tamai, 2019. "Tax competition, unemployment, and intergovernmental transfers," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 26(4), pages 899-918, August.
    5. MORITA Tadashi & OGAWA Yoshitomo & ONO Yoshiyasu, 2017. "Corporate Tax Competition in the Presence of Unemployment," Discussion papers 17118, Research Institute of Economy, Trade and Industry (RIETI).

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