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

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Abstract

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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  • Robin Boadway & Katherine Cuff & Nicolas Marceau, 1999. "Inter-Jurisdictional Competition for Firms: Jobs as Vehicles for Redistribution," Cahiers de recherche CREFE / CREFE Working Papers 85, CREFE, Université du Québec à Montréal, revised Jul 1999.
  • Handle: RePEc:cre:crefwp:85
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    References listed on IDEAS

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    1. Robin Boadway & Katherine Cuff, 1999. "Monitoring Job Search as an Instrument For Targeting Transfers," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 6(3), pages 317-337, August.
    2. Cremer, Helmuth & et al, 1996. "Mobility and Redistribution: A Survey," Public Finance = Finances publiques, , vol. 51(3), pages 325-352.
    3. Guesnerie, Roger & Roberts, Kevin, 1987. "Minimum wage legislation as a second best policy," European Economic Review, Elsevier, vol. 31(1-2), pages 490-498.
    4. 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.
    5. Boadway, Robin & Keen, Michael, 2000. "Redistribution," Handbook of Income Distribution,in: A.B. Atkinson & F. Bourguignon (ed.), Handbook of Income Distribution, edition 1, volume 1, chapter 12, pages 677-789 Elsevier.
    6. 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 203-210, Jan.-Feb..
    7. Lockwood, Ben, 1999. "Inter-regional insurance," Journal of Public Economics, Elsevier, vol. 72(1), pages 1-37, April.
    8. Drazen, Allan, 1986. "Optimal Minimum Wage Legislation," Economic Journal, Royal Economic Society, vol. 96(383), pages 774-784, September.
    9. Joseph Stiglitz, 1999. "Taxation, Public Policy, and Dynamics of Unemployment," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 6(3), pages 239-262, August.
    10. Pauly, Mark V., 1973. "Income redistribution as a local public good," Journal of Public Economics, Elsevier, vol. 2(1), pages 35-58, February.
    11. David E. Wildasin, 1994. "Income Redistribution and Migration," Canadian Journal of Economics, Canadian Economics Association, vol. 27(3), pages 637-656, August.
    12. 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.
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    Cited by:

    1. Marceau, Nicolas, 2008. "La concurrence entre gouvernements est-elle bénéfique?," L'Actualité Economique, Société Canadienne de Science Economique, vol. 84(4), pages 365-390, Décembre.
    2. Boadway, Robin & Cuff, Katherine & Marceau, Nicolas, 2003. "Redistribution and employment policies with endogenous unemployment," Journal of Public Economics, Elsevier, vol. 87(11), pages 2407-2430, October.

    More about this item

    Keywords

    Inter-Jurisdictional Competitition; Redistributive Policies; Unemployment;

    JEL classification:

    • H2 - Public Economics - - Taxation, Subsidies, and Revenue
    • H7 - Public Economics - - State and Local Government; Intergovernmental Relations
    • J6 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers

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