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

29 Pages Posted: 15 Oct 2009

See all articles by Leon J.H. Bettendorf

Leon J.H. Bettendorf

Erasmus University Rotterdam (EUR)

Albert van der Horst

affiliation not provided to SSRN

Ruud A. De Mooij

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

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Date Written: 0000

Abstract

This paper analyses 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 rises 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 with small labour market imperfections. 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.

Suggested Citation

Bettendorf, Leon J.H. and Horst, Albert van der and De Mooij, Ruud A., Corporate Tax Policy and Unemployment in Europe: An Applied General Equilibrium Analysis (0000). World Economy, Vol. 32, Issue 9, pp. 1319-1347, September 2009, Available at SSRN: https://ssrn.com/abstract=1489081 or http://dx.doi.org/10.1111/j.1467-9701.2009.01211.x

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

affiliation not provided to SSRN

No Address Available

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/

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