Koskela, Erkki; Ronnie Schöb - In: Contributions to Economic Analysis & Policy 1 (2002) 1, pp. 1004-1004
This paper shows that a small open economy that suffers from involuntary unemployment should levy a positive source-based tax on capital income. A revenue-neutral tax reform that increases the capital tax rate and reduces the labour tax rate will induce firms to substitute labour for capital....