Asymmetric Capital-Tax Competition, Unemployment and Losses from Capital Market Integration

Ruediger Pethig () and Frieder Kolleß ()

No CESifo Working Paper No. 2795, CESifo Working Paper Series from CESifo Group Munich

Abstract: 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 au-tarky to trade without taxation and/or (ii) when moving from trade without taxation to tax competition.

Keywords: capital taxation; asymmetric tax competition; rigid wages; unemployment; losses from trade (search for similar items in EconPapers)
JEL-codes: E24 F21 H25 H87 J64 R13 (search for similar items in EconPapers)
Date: 2009
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Related works:
Working Paper: Asymmetric capital-tax competition, unemployment and losses from capital market integration (2009)
Working Paper: Asymmetric capital-tax competition, unemployment and losses from capital market integration (2009)
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