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Inter-Jurisdictional Competition for Firms: Jobs as Vehicles for Redistribution

A model is built in which regions with redistributive goals compete to attract mobile firms that provide jobs to their work forces. Regions are inhabited with an immobile population of disabled and able individuals. The aim of each regional government is to provide support for the disabled, who cannot work. Able individuals may work, be involuntary unemployed because of frictions in the regional labour market, or choose to be voluntary unemployed. A region's redistributive policies affect the labour participation choice of able individuals thereby determining the size of its labour force. The size of the regional workforce, together with the possible taxation of firms, make a region more or less attractive to firms. A key finding is that allowing regions to engage in tax competition may be efficient. If regions cannot tax firms, they will compete by implementing inefficient redistributive policies. Nous considérons un monde dans lequel des régions en concurrence et ayant des objectifs redistributifs tentent d'attirer des firmes pouvant fournir des emplois à leur population active. Les régions sont peupléees d'individus immobiles et qui sont aptes ou inaptes au travail. L'objectif de chaque gouvernement régional est d'aider ceux qui sont inaptes au travail. Ceux qui sont aptes au travail peuvent trouver un emploi, être involontairement en chômage à cause de frictions sur le marché du travail régional ou être volontairement en chômage. Les politiques redistributives ont un impact sur les choix de participation des individus aptes au travail, déterminant par le fait même la taille de la population active d'une région. La taille de sa population active, de même que le niveau des taxes qu'elle impose aux firmes, font qu'une région est plus ou moins attirante pour les firmes. Nous montrons qu'il peut être efficace de permettre à des régions en concurrence de taxer les firmes. Si les régions ne peuvent taxer les firmes, elles se concurrenceront en choisissant de mettre en place des politiques redistributives inefficaces.

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Paper provided by CREFE, Université du Québec à Montréal in its series Cahiers de recherche CREFE / CREFE Working Papers with number 85.

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Length: 33 pages
Date of creation: May 1999
Date of revision: Jul 1999
Handle: RePEc:cre:crefwp:85
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  1. Keen, Michael & Marchand, Maurice, 1997. "Fiscal competition and the pattern of public spending," Journal of Public Economics, Elsevier, vol. 66(1), pages 33-53, October.
  2. Robin Boadway & Katherine Cuff, 1999. "Monitoring Job Search as an Instrument for Targeting Transfers," Cahiers de recherche CREFE / CREFE Working Papers 71, CREFE, Université du Québec à Montréal.
  3. Boskin, Michael J, 1973. "Local Government Tax and Product Competition and the Optimal Provision of Public Goods," Journal of Political Economy, University of Chicago Press, vol. 81(1), pages 203-10, Jan.-Feb..
  4. Wildasin, D.E., 1992. "Income Restribution and Migration," Papers 92-003, Indiana - Center for Econometric Model Research.
  5. CREMER, Helmuth & FOURGEAUD, Virginie & LEITE-MONTEIRO, Manuel & MARCHAND, Maurice, . "Mobility and redistribution: A survey," CORE Discussion Papers RP 1371, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  6. Drazen, Allan, 1986. "Optimal Minimum Wage Legislation," Economic Journal, Royal Economic Society, vol. 96(383), pages 774-84, September.
  7. Pauly, Mark V., 1973. "Income redistribution as a local public good," Journal of Public Economics, Elsevier, vol. 2(1), pages 35-58, February.
  8. Lockwood, Ben, 1997. "Inter-Regional Insurance," Discussion Papers 9703, Exeter University, Department of Economics.
  9. Joseph Stiglitz, 1999. "Taxation, Public Policy, and Dynamics of Unemployment," International Tax and Public Finance, Springer, vol. 6(3), pages 239-262, August.
  10. Robin Boadway & Michael Keen, 1999. "Redistribution," Working Papers 983, Queen's University, Department of Economics.
  11. Johnson, G.E. & Layard, P.R.G., 1987. "The natural rate of unemployment: Explanation and policy," Handbook of Labor Economics, in: O. Ashenfelter & R. Layard (ed.), Handbook of Labor Economics, edition 1, volume 2, chapter 16, pages 921-999 Elsevier.
  12. Guesnerie, Roger & Roberts, Kevin, 1987. "Minimum wage legislation as a second best policy," European Economic Review, Elsevier, vol. 31(1-2), pages 490-498.
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