Efficiency in public input provision in two asymmetric jurisdictions with imperfect labour markets

Holger Gillet and Johannes Pauser ()
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Holger Gillet: Ministry of Economics, Labour, Energy and Transport of Saarland

No 201411, IAB-Discussion Paper from Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany]

Abstract: "This paper examines efficiency in public input provision in two large jurisdictions with imperfect labour markets. It analyses how equilibrium capital tax rates and public input provision levels differ between asymmetric jurisdictions that can strategically influence the interest rate on the common capital market in an international tax competition setting. In contrast to the scenario assuming competitive labour markets, the non-cooperative equilibrium is inefficient also when governments have capital and head taxes at disposal. As a source of both the distortion in the capital allocation between jurisdictions and the inefficiency in public input provision, which can be determined in at least one of the jurisdictions, we identify the governments' incentives to decrease unemployment, and a pecuniary externality [De- Pater, J., Myers, G., 1994. Strategic capital tax competition: a pecuniary externality and a corrective device. Journal of Urban Economics 36, 66-78.] in both jurisdictions. Efficiency in public input provision can be restored, however, if the set of fiscal instruments available for regional policy makers is extended by a labour tax." (Author's abstract, IAB-Doku) ((en))

Keywords: Besteuerung; Finanzpolitik; Gebietskörperschaften; Kapitalmarkt; Kapitalmobilität; Allokation; Marktunvollkommenheit; öffentliches Gut; Region; Arbeitsmarkt; Wettbewerbsbedingungen (search for similar items in EconPapers)
JEL-codes: H21 H71 J64 (search for similar items in EconPapers)
Pages: 24 pages
Date: 2014
New Economics Papers: this item is included in nep-pbe, nep-pub and nep-ure
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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