Tax-Competition with Involuntary Unemployment

21 Pages Posted: 14 May 2010

See all articles by Thomas Eichner

Thomas Eichner

University of Siegen - School of Economic Disciplines

Thorsten Upmann

Helmholtz Institute for Functional Marine Biodiversity at the University of Oldenburg; Bielefeld University - Department of Business Administration and Economics; CESifo (Center for Economic Studies and Ifo Institute)

Date Written: May 1, 2010

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

JEL Classification: H21, H71, H72, J51

Suggested Citation

Eichner, Thomas and Upmann, Thorsten, Tax-Competition with Involuntary Unemployment (May 1, 2010). CESifo Working Paper Series No. 3048. Available at SSRN: https://ssrn.com/abstract=1605117

Thomas Eichner

University of Siegen - School of Economic Disciplines ( email )

Hoelderlinstrasse 3
57068 Siegen
Germany

Thorsten Upmann (Contact Author)

Helmholtz Institute for Functional Marine Biodiversity at the University of Oldenburg ( email )

Ammerländer Heerstraße 231
Oldenburg, 26129
Germany

Bielefeld University - Department of Business Administration and Economics ( email )

P.O. Box 100131
D-33501 Bielefeld, NRW 33501
Germany

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

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