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Tax Coordination and Unemployment


  • Clemens Fuest
  • Bernd Huber


This paper analyses the implications of unemloyment for fiscal competition and tax coordination among small open economies. Unemployment is modeled as resulting from wage bargaining. The analysis focuses on the effect of labour and capital tax co-ordination on welfare. We show that, while coordinated capital and labour tax increases unambiguously raise welfare if labour markets are competitive, different results emerge if labour markets are unionised. It turns out that co-ordinated capital and labour tax increases may reduce welfare.

Suggested Citation

  • Clemens Fuest & Bernd Huber, "undated". "Tax Coordination and Unemployment," EPRU Working Paper Series 97-26, Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics.
  • Handle: RePEc:kud:epruwp:97-26

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    References listed on IDEAS

    1. Edwards, Jeremy & Keen, Michael, 1996. "Tax competition and Leviathan," European Economic Review, Elsevier, vol. 40(1), pages 113-134, January.
    2. Wildasin, David E., 1989. "Interjurisdictional capital mobility: Fiscal externality and a corrective subsidy," Journal of Urban Economics, Elsevier, vol. 25(2), pages 193-212, March.
    3. Huizinga, Harry & Nielsen, Soren Bo, 1997. "Capital income and profit taxation with foreign ownership of firms," Journal of International Economics, Elsevier, vol. 42(1-2), pages 149-165, February.
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    5. Mintz, Jack & Tulkens, Henry, 1996. "Optimality properties of alternative systems of taxation of foreign capital income," Journal of Public Economics, Elsevier, vol. 60(3), pages 373-399, June.
    6. Gabszewicz, J. J. & van Ypersele, T., 1996. "Social protection and political competition," Journal of Public Economics, Elsevier, vol. 61(2), pages 193-208, August.
    7. Hersoug, Tor, 1985. " Workers versus Government-Who Adjusts to Whom?," Scandinavian Journal of Economics, Wiley Blackwell, vol. 87(2), pages 270-292.
    8. 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.
    9. 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.
    10. McDonald, Ian M & Solow, Robert M, 1981. "Wage Bargaining and Employment," American Economic Review, American Economic Association, vol. 71(5), pages 896-908, December.
    11. Hersoug, Tor, 1984. "Union Wage Responses to Tax Changes," Oxford Economic Papers, Oxford University Press, vol. 36(1), pages 37-51, March.
    12. Huber, Bernd, 1997. "Optimal Capital Income Taxes and Capital Controls in Small Open Economies," Munich Reprints in Economics 19405, University of Munich, Department of Economics.
    13. John Creedy & Ian M McDonald, 1989. "Trade Unions, wages and taxation," Fiscal Studies, Institute for Fiscal Studies, vol. 10(3), pages 50-59, August.
    14. Bernd Huber, 1997. "Optimal Capital Income Taxes and Capital Controls in Small Open Economies," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 4(1), pages 7-24, January.
    15. Lockwood, Ben, 1990. "Tax Incidence, Market Power, and Bargaining Structure," Oxford Economic Papers, Oxford University Press, vol. 42(1), pages 187-209, January.
    16. Edwards, Jeremy & Keen, Michael, 1996. "Tax competition and Leviathan," European Economic Review, Elsevier, vol. 40(1), pages 113-134, January.
    17. Oates, Wallace E. & Schwab, Robert M., 1988. "Economic competition among jurisdictions: efficiency enhancing or distortion inducing?," Journal of Public Economics, Elsevier, vol. 35(3), pages 333-354, April.
    18. Oswald, Andrew J, 1982. "The Microeconomic Theory of the Trade Union," Economic Journal, Royal Economic Society, vol. 92(367), pages 576-595, September.
    19. Palokangas, Tapio, 1987. "Optimal Taxation and Employment Policy with a Centralized Wage Settin g," Oxford Economic Papers, Oxford University Press, vol. 39(4), pages 799-812, December.
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