@article{oai:nagoya.repo.nii.ac.jp:00028272,
 author = {Tamai, Toshiki and Myles, Gareth},
 issue = {E19-3},
 journal = {Economic Research Center Discussion Paper},
 month = {May},
 note = {The reduction of capital tax rates witnessed over the past wo decades has been motivated by the wish to boost investment and reduce unemployment. Previous models of tax competition have explored the consequences for capital allocation in great detail, but have mostly been silent on the employment effects due to the assumption of a perfect labor market. To address the impact of tax competition on employment and public good provision this paper reconsiders the analysis in the presence of a labor market imperfection that generates unemployment. We incorporate a wage rigidity and intergovernmental transfers financed by the labor income tax into the standard tax competition model to explore the outcome of federal-state policy interaction. In this setting there is an employment externality of taxation in addition to the standard fiscal externality. The key factors in determining the efficiency are the substitutability/complementary between capital and labor in production (which determines the magnitude of the employment externality) and the cost of the efficient level of public good supply relative to the ability of the labor income to generate revenue. If there is complementarity the equilibrium is Pareto efficient when the labor income tax can finance the public good. When the labor income tax is not sufficient for financing, there can only be efficiency if the aggregate externality is negative - but this outcome is only one of multiple equilibria. We also that federal government leadership generally improves (and does not worsen) social welfare in comparison to the equilibrium policies under simultaneous policy choice., This work was supported by JSPS KAKENHI Grant Number 16K03726 and 16KK0077.},
 pages = {1--25},
 title = {Unemployment, Tax Competition, and Tax Transfer Policy},
 year = {2019}
}