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Competing for capital when labor is heterogeneous

Author Info

  • Sato, Yasuhiro
  • Thisse, Jacques-Francois

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 always gains and the large country always loses from tax competition, thus implying tax competition leads to redistribution from the large to the small country. However, the large country always attains a higher utility than does the small country. These results imply that our model encapsulates both the “importance of being small” as well as the “importance of being large”. We also show that tax harmonization leads to redistribution from the large to the small country.

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Article provided by Elsevier in its journal European Economic Review.

Volume (Year): 51 (2007)
Issue (Month): 8 (November)
Pages: 2054-2079

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Handle: RePEc:eee:eecrev:v:51:y:2007:i:8:p:2054-2079
Contact details of provider: Web page: http://www.elsevier.com/locate/eer

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Find related papers by JEL classification:
  • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
  • H32 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Firm
  • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials

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Cited by:

  1. Yasuhiro Sato & Kristian Behrens, 2006. "`Brain drain' without migration: Capital market integration and capital-skill complementarities," Economics Bulletin, AccessEcon, vol. 18(2), pages 1-9.
  2. Miyagiwa, Kaz & Sato, Yasuhiro, 2014. "Free entry and regulatory competition in a global economy," Journal of Public Economics, Elsevier, vol. 118(C), pages 1-14.
  3. Sebastian Krautheim & Tim Schmidt-Eisenlohr, 2009. "Heterogeneous firms, "Profit Shifting" FDI and international tax competition," Post-Print halshs-00442818, HAL.
  4. Kaz Miyagiwa & Yasuhiro Sato, 2012. "Free Entry, Regulatory Competition, and Globalization," ISER Discussion Paper 0835, Institute of Social and Economic Research, Osaka University.
  5. repec:ebl:ecbull:v:18:y:2006:i:2:p:1-9 is not listed on IDEAS
  6. 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).
  7. Rüdiger Pethig & Frieder Kolleß, 2009. "Asymmetric capital-tax competition, unemployment and losses from capital market integration," Volkswirtschaftliche Diskussionsbeiträge 137-09, Universität Siegen, Fakultät Wirtschaftswissenschaften, Wirtschaftsinformatik und Wirtschaftsrecht.
  8. 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.

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