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

José Manuel González-Páramo
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José Manuel González-Páramo: Banco Mundial Europeo

Hacienda Pública Española / Review of Public Economics, 2005, vol. 172, issue 1, 23-59

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 .

Keywords: Tax incidence; capital mobility; unemployment; general equilibrium (search for similar items in EconPapers)
JEL-codes: H22 H25 (search for similar items in EconPapers)
Date: 2005
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