Back to issue
Cover of: Fiscal Competition, Labor Mobility, and Unemployment
Jean-Marie Lozachmeur

Fiscal Competition, Labor Mobility, and Unemployment

Section: Articles
Volume 59 (2003) / Issue 2, pp. 212-226 (15)
Published 09.07.2018
DOI 10.1628/0015221032643164
  • article PDF
  • available
  • 10.1628/0015221032643164
Summary
This paper provides an analytical framework to study fiscal competition between two countries when the strategic instrument is the payroll tax raised to finance unemployment benefits. Each country's production sector uses immobile skilled and mobile unskilled workers. Unemployment arises as a consequence of a minimum wage in the unskilled sector. It is shown that when the countries are symmetric, (i) fiscal competition leads to an underprovision of unemployment benefits and (ii) tax rates are strategic substitutes for sufficiently high values of the relative risk aversion parameter. Some numerical illustrations are presented for the case of asymmetric countries.