Tax-Competition with Involuntary Unemployment

Thomas Eichner and Thorsten Upmann

No 3048, CESifo Working Paper Series from CESifo

Abstract: In the present paper we extend the classical tax-competition framework of Zodrow and Mieszkowski (1986) by modelling involuntary unemployment and by allowing for labour taxation as a second source of public funds. For a large class of production functions (including CES), it turns out that tax competition is characterized by underprovision of public goods, and by positive taxes on both labour and capital. We thus conclude that the results of Zodrow and Mieszkowski survive some important and substantial modifications of the framework, and are thus more general than recently suggested elsewhere.

Keywords: tax competition; capital and labour taxation; involuntary unemployment; efficient bargains (search for similar items in EconPapers)
JEL-codes: H21 H71 H72 J51 (search for similar items in EconPapers)
Date: 2010
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Persistent link: https://EconPapers.repec.org/RePEc:ces:ceswps:_3048

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