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Tax-Competition with Involuntary Unemployment

Author

Listed:
  • Thomas Eichner
  • Thorsten Upmann

Abstract

In the present paper we extend the classical tax-competition framework of Zodrow and Mieszkowski (1986) by modelling involuntary unemployment and by allowing for labour taxation as a second source of public funds. For a large class of production functions (including CES), it turns out that tax competition is characterized by underprovision of public goods, and by positive taxes on both labour and capital. We thus conclude that the results of Zodrow and Mieszkowski survive some important and substantial modifications of the framework, and are thus more general than recently suggested elsewhere.

Suggested Citation

  • Thomas Eichner & Thorsten Upmann, 2010. "Tax-Competition with Involuntary Unemployment," CESifo Working Paper Series 3048, CESifo Group Munich.
  • Handle: RePEc:ces:ceswps:_3048
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    File URL: http://www.cesifo-group.de/DocDL/cesifo1_wp3048.pdf
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    References listed on IDEAS

    as
    1. Creedy, John & McDonald, Ian M, 1991. "Models of Trade Union Behaviour: A Synthesis," The Economic Record, The Economic Society of Australia, vol. 67(199), pages 346-359, December.
    2. Arjan Lejour & Harrie Verbon, 1996. "Capital mobility, wage bargaining, and social insurance policies in an economic union," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 3(4), pages 495-513, October.
    3. Bucovetsky, Sam & Wilson, John Douglas, 1991. "Tax competition with two tax instruments," Regional Science and Urban Economics, Elsevier, vol. 21(3), pages 333-350, November.
    4. Zodrow, George R. & Mieszkowski, Peter, 1986. "Pigou, Tiebout, property taxation, and the underprovision of local public goods," Journal of Urban Economics, Elsevier, vol. 19(3), pages 356-370, May.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    tax competition; capital and labour taxation; involuntary unemployment; efficient bargains;

    JEL classification:

    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H71 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Taxation, Subsidies, and Revenue
    • H72 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Budget and Expenditures
    • J51 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - Trade Unions: Objectives, Structure, and Effects

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