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Fighting Tax Competition in the Presence of Unemployment: Complete versus Partial Tax Coordination

Author

Listed:
  • Sven Wehke

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

Abstract
In this paper, we analyze the welfare consequences of tax coordination agreements which cover taxes on mobile capital and immobile labor, respectively. In doing so, we take into account two important institutional details. First, we incorporate decentralized wage bargaining, giving rise to involuntary unemployment. Second, we distinguish between complete tax coordination, which effectively covers both tax instruments, and the more plausible case of partial tax coordination, where one tax is marginally increased by all countries, while the other tax rate can still be freely chosen by all countries. It is shown that complete tax coordination remains to be welfare enhancing in the presence of unemployment. In contrast, for partial tax coordination, the welfare effects become ambiguous and are different to the case of competitive labor markets.

Suggested Citation

  • Sven Wehke, 2007. "Fighting Tax Competition in the Presence of Unemployment: Complete versus Partial Tax Coordination," FEMM Working Papers 07010, Otto-von-Guericke University Magdeburg, Faculty of Economics and Management.
    • Handle: RePEc:mag:wpaper:07010
    as

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    File URL: http://www.ww.uni-magdeburg.de/fwwdeka/femm/a2007_Dateien/2007_10.pdf
    File Function: First version, 2007
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    References listed on IDEAS

    as
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    Cited by:

    1. Kangoh Lee, 2021. "Labor market frictions, capital, taxes and employment," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 28(6), pages 1329-1359, December.

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    More about this item

    Keywords

    factor taxation; (partial) tax coordination; wage bargaining; unemployment;
    All these keywords.

    JEL classification:

    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H87 - Public Economics - - Miscellaneous Issues - - - International Fiscal Issues; International Public Goods
    • J51 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - Trade Unions: Objectives, Structure, and Effects

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