Capital Mobility, Wage Bargaining and Social Insurance Policies in an Economic Union

International Tax and Public Finance, Vol. 3, No. 4, 1996

Posted: 4 May 1998 Last revised: 25 Jan 2016

See all articles by Arjan Lejour

Arjan Lejour

CPB Netherlands Bureau of Economic Policy Analysis; Tilburg University

Harrie A. A. Verbon

Tilburg University - CentER; CESifo (Center for Economic Studies and Ifo Institute)

Date Written: 1996

Abstract

In a two-country model with mobile capital we analyze 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.

JEL Classification: H70, F21

Suggested Citation

Lejour, Arjan M. and Verbon, Harrie A. A., Capital Mobility, Wage Bargaining and Social Insurance Policies in an Economic Union (1996). International Tax and Public Finance, Vol. 3, No. 4, 1996, Available at SSRN: https://ssrn.com/abstract=4092

Arjan M. Lejour (Contact Author)

CPB Netherlands Bureau of Economic Policy Analysis ( email )

Bezuidenhoutseweg 30
po box 80510
The Hague, 2594AV
Netherlands
+31 652485843 (Phone)

HOME PAGE: http://www.cpb.nl/en/medewerkers/arjan-lejour

Tilburg University ( email )

PO Box 90153
Tilburg, 5000 LE Ti
Netherlands
+31 652485843 (Phone)

HOME PAGE: http://https://research.tilburguniversity.edu/en/persons/arjan-lejour

Harrie A. A. Verbon

Tilburg University - CentER ( email )

Department of Economics
P.O. Box 90153
5000 LE Tilburg
Netherlands
+31 13 466 28 78 (Phone)
+31 13 466 30 42 (Fax)

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

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