Competing for Capital When Labor is Heterogeneous

CORE Discussion Paper No. 2005/61

20 Pages Posted: 10 Jul 2006

See all articles by Yasuhiro Sato

Yasuhiro Sato

Catholic University of Louvain (UCL) - Center for Operations Research and Econometrics (CORE); Nagoya University

Jacques-François Thisse

Catholic University of Louvain (UCL); Centre for Economic Policy Research (CEPR)

Date Written: September 2005

Abstract

This paper investigates the impacts of capital mobility and tax competition in a setting with imperfect matching between firms and workers. The small country always gains and the large country always loses from tax competition, thus implying tax competition leads to redistribution from the large to the small country. However, the large country always attains a higher utility than does the small country. These results imply that our model encapsulates both the "importance of being small" as well as the "importance of being large". We also show that tax harmonization leads to redistribution from the large to the small country.

Keywords: fiscal competition, local labor markets, capital mobility

JEL Classification: F21, H32, J31

Suggested Citation

Sato, Yasuhiro and Thisse, Jacques-François, Competing for Capital When Labor is Heterogeneous (September 2005). Available at SSRN: https://ssrn.com/abstract=912634 or http://dx.doi.org/10.2139/ssrn.912634

Yasuhiro Sato (Contact Author)

Catholic University of Louvain (UCL) - Center for Operations Research and Econometrics (CORE) ( email )

34 Voie du Roman Pays
B-1348 Louvain-la-Neuve, b-1348
Belgium

Nagoya University ( email )

Furo-cho, Chikusa-ku
Nagoya-City, 4648601
Japan

Jacques-François Thisse

Catholic University of Louvain (UCL) ( email )

Place des Doyens 1
Louvain-la-Neuve, 1348
Belgium

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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