Labor markets and capital tax competition

Abstract

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Zodrow and Mieszkowski (1986) are not preserved in the presence of unemployment. In the present paper we challenge this view and investigate capital tax competition for some arbitrary institutional setting of the labor market. We find that if the labor market is characterized by some efficient bargaining solution, the results of Zodrow and Mieszkowski (1986) are preserved. Terms of use: Documents in EconStor mayJEL-Code: H21, J51.

The (Im)Possibility of Overprovision of Public Goods in Interjurisdictional Tax Competition

“…Moreover, the limited scope for overprovision identified by Eichner and Upmann (2012) shrinks further once we apply a specific labor market model. Also, the application of specific labor market models yields provision rules for public goods that can be expressed in terms of the primitives of the model (in particular, in terms of the cross derivative of the production function between capital and labor) and thus renders directly testable equations.…”

“…7 We then apply this generalized approach to investigate the polar cases of the monopolistic-union model and the competitive labor market. With these features our model is arguably closest to that of Eichner and Upmann (2012), who introduce an abstract unspecified labor market model along with involuntary unemployment into the classical framework of Zodrow and Mieszkowski (1986), and then show that overprovision of public goods can only materialize when either the capital tax is positive and capital is increasing in the labor tax, or the reverse holds true (proposition 4.b therein).…”

“…Observe that because overprovision of public goods can only materialize if capital and labor are complements in production and either capital or labor is subsidized (rather than taxed), this rules out (see appendix D) the first possibility for overprovision of public goods provided by Eichner and Upmann (2012): a positive tax rate on capital tax along with capital demand being increasing in the labor tax. Thus, on imposing some additional pieces of structure to those Eichner and Upmann impose, the case for overprovision of public goods (as an equilibrium outcome in tax competition) becomes limited further.…”

“…However, none of these papers addresses the issue of unemployment. 5 For a detailed discussion of the limits of and the driving forces behind the fixed-wage approach of Ogawa et al (2006) see Eichner and Upmann (2012).…”

“…Also, by imposing additional pieces of structure on the model, the conditions for under-or overprovision of public goods become more transparent than in Eichner and Upmann (2012), for these rules can now be expressed in terms of the primitives of the model, i. e., in terms of the properties of the production function. In contrast, the abstract generality of the approach of Eichner and Upmann requires the provision rules to be expressed in terms 8 The latter result is in line with the literature on optimal capital taxation with unemployment; see Koskela and Schöb (2002) and the references cited therein.…”