Capital mobility, wage bargaining and social insurance policies in an economic union

A.M. Lejour, H.A.A. Verbon

Research output: Contribution to journalArticleScientificpeer-review

24 Citations (Scopus)

Abstract

In a two-country model with mobile capital we analyse decentralized social insurance policies. These policies are a compromise between the preferences of workers and capital owners. Due to wage bargaining, worker-based social insurance contributions are borne by capital owners. These contributions affect the profitability of investment, and consequently the direction and size of capital flows. Countries will take account of these effects in determining social insurance policy. Noncooperative decision making results in tax competition and an underprovision of social insurance. In addition, increasing economic integration, represented by increasing capital mobility, could imply a divergence of social insurance levels in the two countries.
Original languageEnglish
Pages (from-to)495-514
JournalInternational Tax and Public Finance
Volume3
Issue number4
DOIs
Publication statusPublished - 1996

Keywords

  • economic integration
  • social insurance policies
  • capital mobility
  • wage bargaining
  • tax competition

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