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Asymmetric capital-tax competition, unemployment and losses from capital market integration

  • Rüdiger Pethig

    ()

    (University of Siegen)

  • Frieder Kolleß

    ()

    (University of Siegen)

In a multi-country general equilibrium economy with mobile capital and rigid-wage unemployment, countries may differ in capital endowments, production technologies and rigid wages. Governments tax capital at the source to maximize national welfare. They account for tax base responses to their tax and take as given the world-market interest rate. We specify conditions under which - in contrast to free trade with undistorted labor markets - welfare declines and unemployment increases in some countries (i) when moving from autarky to trade without taxation and/or (ii) when moving from trade without taxation to tax competition.

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File URL: http://www.uni-marburg.de/fb02/makro/forschung/magkspapers/40-2009_pethig.pdf
File Function: First version, 2009
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Paper provided by Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung) in its series MAGKS Papers on Economics with number 200940.

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Length: 31 pages
Date of creation: 2009
Date of revision:
Publication status: Forthcoming in
Handle: RePEc:mar:magkse:200940
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  1. Wilson, John D., 1986. "A theory of interregional tax competition," Journal of Urban Economics, Elsevier, vol. 19(3), pages 296-315, May.
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