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| Author: | Holmlund, B. Kolm, A-S. |
| Title: | International spillover effects of sectoral tax differentiation in unionized economies |
| Journal: | Oxford Economic Papers
2002 : APR, VOL. 54:2, p. 207-229 |
| Index terms: | Technology transfer International Markets Terms of trade Taxation Statistical methods Models European Union |
| Language: | eng |
| Abstract: | In recent years, sectoral tax differentiation has appeared on the agenda in European policy discussions concerning unemployment. The member countries of the European Union (EU) are allowed to reduce the value added tax rates on goods and services that are particularly labour intensive and price elastic. This paper provides theoretical analysis of the international repercussions of such policies. A 2-country and 2-sector model with monopolistic competition in the goods market and wage bargaining in the labour market are developed. Policy externalities operate through the endogenously determined terms of trade. How national and supranational commodity tax policies affect sectoral and total employment and characterize optimal commodity taxes with and without international policy co-operation are examined. Some rough estimates of the welfare gains from policy coordination are also presented, using a calibrated version of the model. |
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