Labor markets and capital tax competition

Ogawa et al. (J. Urban Econ. 60:350, 2006) analyze capital tax competition in a fixed-wage approach and show that the original results of Zodrow and Mieszkowski (J. Urban Econ. 19:356, 1986) are not preserved in the presence of unemployment. In the present paper, we challenge this view and investigate capital tax competition for some arbitrary institutional setting of the labor market. We find that if the labor market is characterized by some efficient bargaining solution, the results of Zodrow and Mieszkowski (J. Urban Econ. 19:356, 1986) are preserved.