Publishing type：Research paper (scientific journal)   Publisher：Springer Science and Business Media LLC  

Abstract

This paper examines the endogenous choice of unit and ad valorem taxes in a model of tax competition with unemployment. Governments maximize objective functions that are a weighted sum of regional welfare and revenue. In the tax competition model, a high fixed wage rate generates unemployment and employment externalities. This effect can be either positive or negative because of freely mobile capital among regions. Without unemployment, revenue-maximizing governments choose unit taxes as their tax instrument to avoid revenue losses from intense tax competition under ad valorem taxes. However, with unemployment, positive employment externalities generate additional benefits for using ad valorem taxes to stimulate employment. Therefore, the present study shows that one region chooses an ad valorem tax, whereas the other chooses a unit tax, or that both governments use ad valorem taxes depending on employment externalities.

DOI： 10.1007/s10797-023-09785-x

Other Link： https://link.springer.com/article/10.1007/s10797-023-09785-x/fulltext.html

Publishing type：Research paper (scientific journal)   Publisher：Wiley  

Abstract

This study examines two different fiscal competition games under labor market imperfections. Given that capital moves across regions and affects regional employment, governments must choose the expenditure level and tax rate on such mobile capital by accounting for the effects of fiscal variables on both capital and labor. Therefore, governments may play these games with either the tax rates on mobile capital or with public expenditures. The presence/absence of absentee ownership of capital and employment externalities are significant factors that characterize two distinct Nash equilibria, one that occurs with tax competition and the other with expenditure competition. Contrary to the existing literature, tax rates under tax competition are likely to be lower than those under expenditure competition owing to employment externalities. In some cases, governments prefer to choose government expenditure as their strategic variable rather than the tax rate. The presence of employment externalities motivates governments to use such expenditure as the variable through which it may strengthen strategic effects.

DOI： 10.1111/jpet.12684

Publishing type：Research paper (scientific journal)   Publisher：Springer Science and Business Media LLC  

DOI： 10.1007/s10797-019-09533-0

Other Link： http://link.springer.com/content/pdf/10.1007/s10797-019-09533-0.pdf