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The effects of labour unions on international capital tax competition


  • Exbrayat is also affiliated with Université Jean Monnet, Saint-Etienne; Gaigné is also affiliated with CREATE, Université Laval; Riou is also affiliated with Université Jean Monnet, Saint-Etienne. We wish to thank Simone Moriconi, Kristian Behrens, and Gilles Duranton for their useful comments and suggestions. We would also like to thank the participants of the VIIth RIEF Doctoral Meetings in Rennes, the 8th Public Economic Theory meeting, the CORE spatial economic seminar, the GATE seminar, the WZB seminar, the FUNDP seminar, the 24th meeting of the JMA, the COMPNASTA workshop, and the Public Economic Group seminar of ENS-Cachan. This work was supported by the German Science Foundation (DFG) and the French Research Agency (ANR) through grant ‘Competition among Nation States’ [KO 1437/9-1]. Email:


Abstract We analyze the impact of labour market rigidities on tax competition between two imperfectly integrated countries. Following a shift from a competitive to a unionized labour market in both countries, the capital tax can be adjusted upward in the country with the less rigid labour market, whereas the capital tax is always adjusted downward in the other country. Moreover, by reducing the labour cost differential between countries, trade liberalization gives rise to tax and welfare convergences. Finally, when a country adopts a flexible labour market, the unionized country may attract the majority of capital.


Nous analysons l’impact des rigidités salariales sur la concurrence fiscale entre deux pays imparfaitement intégrés. La formation de syndicats engendre une baisse du taux d’imposition des sociétés dans le pays où les rigidités salariales sont les plus fortes alors que l’imposition des sociétés peut augmenter dans l’autre pays. De plus, la libéralisation commerciale, en réduisant la différence de coûts salariaux entre pays, se traduit par une convergence des niveaux d’imposition et de bien-être. Enfin, en présence de syndicats dans un seul des deux pays, ce dernier peut attirer la majorité des capitaux.