Taxing Mobile Capital with Labor Market Imperfections

28 Pages Posted: 11 Jul 2001

See all articles by Wolfram F. Richter

Wolfram F. Richter

TU Dortmund University; CESifo (Center for Economic Studies and Ifo Institute); Institute for the Study of Labor (IZA)

Kerstin Schneider

University of Dortmund; CESifo (Center for Economic Studies and Ifo Institute)

Date Written: May 2001

Abstract

Taxing internationally mobile factors of production has been dismissed as an inefficient means of raising tax revenue. This paper addresses the question of whether it is efficient to tax capital at source when labor markets and the taxation of lumpsum income suffer from imperfections. Four reasons for taxing capital are identified: (i) institutional constraints rendering any taxation of profit income infeasible; (ii) market power in the demand for labor; (iii) market power in the supply of labor if it increases with the employment of capital; (iv) unemployment benefits that are not tied to net real wages. It is argued that the case for taxing capital is not particularly strong. By reinterpreting capital as energy the results are applicable to the discussion about ecological tax reforms.

Keywords: Optimal Taxation, Factor Mobility, Labor Market Imperfections, Ecological Tax Reform

JEL Classification: H2

Suggested Citation

Richter, Wolfram F. and Schneider, Kerstin, Taxing Mobile Capital with Labor Market Imperfections (May 2001). CESifo Working Paper Series No. 477. Available at SSRN: https://ssrn.com/abstract=273352

Wolfram F. Richter (Contact Author)

TU Dortmund University ( email )

Vogelpothsweg 87
D-44221 Dortmund
Germany
+49-231-755-3146 (Phone)
+49-231-755-5404 (Fax)

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

HOME PAGE: http://www.CESifo.de

Institute for the Study of Labor (IZA)

P.O. Box 7240
Bonn, D-53072
Germany

Kerstin Schneider

University of Dortmund ( email )

D-44221 Dortmund
Germany

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

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