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Tax Coordination and Unemployment

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  • Fuest, Clemens
  • Huber, Bernd

Abstract

This paper analyses the implications of unemployment 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 coordination 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 coordinated capital and labour tax increases may reduce welfare.

Suggested Citation

  • Fuest, Clemens & Huber, Bernd, 1999. "Tax Coordination and Unemployment," Munich Reprints in Economics 20298, University of Munich, Department of Economics.
    • Handle: RePEc:lmu:muenar:20298
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