Journal of Economics

, Volume 82, Issue 2, pp 137–167

Fiscal Policy, Economic Integration and Unemployment

Article

Abstract

In this paper fiscal policy is examined for an open economy characterized by unemployment due to efficiency wages. We allow for capital and firm mobility in a model where the government chooses the level of wage, source-based capital and profit taxation. The taxing choices of governments are analyzed in scenarios which differ with respect to the constraints imposed on the set of available taxes and on the mobility of firms. As a general result, the welfare loss from labor market imperfections increases when tax bases become internationally mobile, which suggests an increasing relevance of domestic labor-market reforms when tax bases become global.

Keywords

optimal taxation efficiency wages unemployment 

JEL classification

H 21 J 41 J 65 

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Copyright information

© Springer-Verlag Wien 2004

Authors and Affiliations

  1. 1.Department of EconomicsUniversity of KonstanzKonstanzGermany
  2. 2.Department of Economics (FB 03)Johannes Gutenberg-University MainzMainzGermany

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