Corporate Tax Policy and Unemployment in Europe: An Applied General Equilibrium Analysis

Tinbergen Institute Discussion Paper No. 2007-056/2

40 Pages Posted: 23 Jul 2007

See all articles by Leon J.H. Bettendorf

Leon J.H. Bettendorf

Erasmus University Rotterdam (EUR)

Albert van der Horst

CPB Netherlands Bureau of Economic Policy Analysis

Ruud A. De Mooij

International Monetary Fund (IMF); CESifo (Center for Economic Studies and Ifo Institute); Oxford University Centre for Business Taxation

Multiple version iconThere are 2 versions of this paper

Date Written: July 23, 2007

Abstract

This paper analyzes the impact of corporate taxes on structural unemployment, using an applied general equilibrium model for the European Union. We find that the unemployment and welfare effects of corporate taxes differ considerably among European countries. The magnitude of these effects rise in particular in the broadness of the corporate tax base of a country, and the strength of international spillover effects through foreign direct investment. The effect on unemployment is smaller if the substitution elasticity between labour and capital is large, if international spillover effects operate primarily via multinational profit shifting, and if equilibrium forces on the labour market are strong. Although the effect of corporate taxes on unemployment may be smaller than the effect of labour and value-added taxes (e.g. under relatively strong real wage resistance), the welfare costs of corporate taxation are typically larger for most European countries under plausible parameters, especially under strong international spillovers.

Keywords: Corporate Tax, Structural Unemployment, Applied General Equilibrium, European Union

JEL Classification: D58, H25, J64

Suggested Citation

Bettendorf, Leon J.H. and van der Horst, Albert and De Mooij, Ruud A., Corporate Tax Policy and Unemployment in Europe: An Applied General Equilibrium Analysis (July 23, 2007). Tinbergen Institute Discussion Paper No. 2007-056/2, Available at SSRN: https://ssrn.com/abstract=1002362 or http://dx.doi.org/10.2139/ssrn.1002362

Leon J.H. Bettendorf (Contact Author)

Erasmus University Rotterdam (EUR) ( email )

P.O. Box 1738
3000 DR Rotterdam
Netherlands
+31 10 4081808 (Phone)

Albert Van der Horst

CPB Netherlands Bureau of Economic Policy Analysis ( email )

2585 JR

Ruud A. De Mooij

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

Oxford University Centre for Business Taxation ( email )

Mansfield Road
Oxford, Oxfordshire OX1 4AU
United Kingdom

HOME PAGE: http://people.few.eur.nl/demooij/

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
117
Abstract Views
946
rank
256,649
PlumX Metrics