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Who gains from capital market integration? Tax competition between unionized and non‐unionized countries
Author(s) -
Ogawa Hikaru,
Sato Yasuhiro,
Tamai Toshiki
Publication year - 2016
Publication title -
canadian journal of economics/revue canadienne d'économique
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.773
H-Index - 69
eISSN - 1540-5982
pISSN - 0008-4085
DOI - 10.1111/caje.12191
Subject(s) - economics , labour economics , factor market , capital deepening , capital market , capital (architecture) , welfare , financial capital , market economy , business , capital formation , human capital , finance , archaeology , history
Abstract The welfare effects of capital market integration are examined under a model of tax competition with two asymmetric countries. The asymmetry is expressed through the labour market: one country has a perfect labour market whereas the other country's labour market is unionized. Our results indicate that the welfare effects of capital market integration differ depending on whether governments are active or passive in attracting capital. In the absence of active governments, capital market integration benefits the country with a competitive labour market whereas it harms the unionized country. Capital market integration benefits both countries if governments are active and compete for mobile capital using taxes/subsidies.