Template-Type: ReDIF-Paper 1.0

Author-Name: Hyun-Ju Koh
Author-X-Name-First: Hyun-Ju
Author-X-Name-Last: Koh

Author-Name: Ferdinand Mittermaier
Author-X-Name-First: Ferdinand
Author-X-Name-Last: Mittermaier

Title: The winner gives it all: Unions, tax competition and offshoring

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.
Length:  29 pages
Creation-Date:  2009-08
File-URL: http://www.bgpe.de/texte/DP/079_koh.pdf
File-Format: Application/pdf
File-Function: First version, 2009
Number: 079
Classification-JEL: F12, F16, F21, H25, H73, J51
Keywords: tax competition, trade unions, agglomeration
Handle: RePEc:bav:wpaper:079_koh