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Public Goods, Unemployment and Policy Coordination

  • Aronsson, Thomas

    ()

    (Department of Economics, Umeå University)

  • Wehke, Sven

    ()

    (Otto-von-Guericke-University Magdeburg, Faculty of Economics and Management)

Earlier literature on tax competition and policy coordination typically assumes that the labor market is competitive; a description less suitable for Europe, where trade unions have had a strong position in the labor market for a long time. This paper concerns factor income taxation and public good provision in small open economies characterized by capital mobility and imperfect competition in the labor market. We assume that each national government collects public revenues via taxes on labor, capital and profit income, and that the revenues are spent on a public consumption good and a public input good, where the latter enters the economic system in terms of an `externality production factor'. The overall purposes are to characterize the tax and expenditure policies, if decided upon at the national level, and analyze the welfare effects of policy coordination with respect to taxes and public expenditures. Among the results, we show that tax coordination contributes to higher welfare if it reduces the net interest rate and the wage rate, and that the relative overprovision of the public input good derived by Keen and Marchand (1997) in the context of a competitive economy may no longer hold, if the labor market is non-competitive.

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Paper provided by Umeå University, Department of Economics in its series Umeå Economic Studies with number 700.

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Length: 28 pages
Date of creation: 24 Nov 2006
Date of revision:
Handle: RePEc:hhs:umnees:0700
Contact details of provider: Postal: Department of Economics, Umeå University, S-901 87 Umeå, Sweden
Phone: 090 - 786 61 42
Fax: 090 - 77 23 02
Web page: http://www.econ.umu.se/
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  1. Koskela, Erkki & Schöb, Ronnie, 2001. "Optimal Factor Income Taxation in the Presence of Unemployment," Discussion Papers 758, The Research Institute of the Finnish Economy.
  2. Thomas Aronsson & Tomas Sjögren, 2004. "Is the Optimal Labor Income Tax Progressive in a Unionized Economy?," Scandinavian Journal of Economics, Wiley Blackwell, vol. 106(4), pages 661-675, December.
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  13. Aronsson, Thomas & Wehke, Sven, 2008. "Public goods, unemployment and policy coordination," Regional Science and Urban Economics, Elsevier, vol. 38(3), pages 285-298, May.
  14. Sven Wehke, 2006. "Tax Competition and Partial Coordination," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 62(3), pages 416-436, September.
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  25. Stefan Boeters & Kerstin Schneider, 1999. "Government versus Union. The Structure of Optimal Taxation in a Unionized Labor Market," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 56(2), pages 174-, June.
  26. Matsumoto, Mutsumi, 1998. "A note on tax competition and public input provision," Regional Science and Urban Economics, Elsevier, vol. 28(4), pages 465-473, July.
  27. Aronsson, Thomas & Sjogren, Tomas, 2004. "Efficient taxation, wage bargaining and policy coordination," Journal of Public Economics, Elsevier, vol. 88(12), pages 2711-2725, December.
  28. Wolfram F. Richter & Kerstin Schneider, 2001. "Taxing Mobile Capital with Labor Market Imperfections," CESifo Working Paper Series 477, CESifo Group Munich.
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  30. Berndt, Ernst R & Hansson, Bengt, 1992. " Measuring the Contribution of Public Infrastructure Capital in Sweden," Scandinavian Journal of Economics, Wiley Blackwell, vol. 94(0), pages S151-68, Supplemen.
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