Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/73426
Authors: 
Koh, Hyun-Ju
Mittermaier, Ferdinand
Year of Publication: 
2009
Series/Report no.: 
BGPE Discussion Paper 79
Abstract: 
This paper analyzes competition for capital between welfare-maximizing gov- ernments in a framework with agglomeration tendencies and asymmetric union- ization. We find that a unionized country's government finds it optimal to use tax policy to induce industry to relocate towards a location with a competitive labor market instead of realizing the benefits from higher wage income while exporting part of the wage burden to foreign consumers. Via the tax regime effect, which favors the factor capital, and the efficiency effect, consumers and producers alike benefit from off-shoring industry towards a low-cost country. Our result qualifies first intuition that defending high wage industries is beneficial to a country as part of the associated cost is shifted to foreign consumers.
Subjects: 
tax competition
trade unions
agglomeration
JEL: 
F12
F16
F21
H25
H73
J51
Document Type: 
Working Paper

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