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Imperfect factor mobility, unemployment, and the short-period incidence of a capital income tax

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  • José Manuel González-Páramo

    (Banco Mundial Europeo)

Abstract

A crucial feature of the short-run perspective in many policy-relevant issues is the existence of unemployment due to wage rigidities. At the same time, imperfections in the degree of factor mobility between sectors or regions determine the nature and flexibility of the responses of the economy to exogenous shocks. It is no wonder then that the incidence of taxation upon employment and income distribution is a central preoccupation of the fiscal authorities. In this paper we explore the structure of the incidence and the economic effects of a selective capital income tax in a neoclassical, two-sector, two-factor, short-period model in which the existence of a sticky wage that exceeds the maximum level consistent with full-employment leads to unemployment of labour .

Suggested Citation

  • José Manuel González-Páramo, 2005. "Imperfect factor mobility, unemployment, and the short-period incidence of a capital income tax," Hacienda Pública Española / Review of Public Economics, IEF, vol. 172(1), pages 23-59, June.
    • Handle: RePEc:hpe:journl:y:2005:v:172:i:1:p:23-59
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    More about this item

    Keywords

    Tax incidence; capital mobility; unemployment; general equilibrium;
    All these keywords.

    JEL classification:

    • H22 - Public Economics - - Taxation, Subsidies, and Revenue - - - Incidence
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies

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