ON THE STRATEGIC CHOICE BETWEEN CAPITAL AND LABOR MOBILITY

This paper analyzes the strategies of two governments when choosing between capital and labor mobility. For each type of factor mobility, the Nash equilibria under both income taxes and quotas on factor flows are derived. From each country's point of view, an income tax dominates a quota. The paper also shows that in a strategic environment, Ramaswami's result that a country prefers the restricted inflow of a scarce factor to the restricted outflow of an abundant factor continues to hold for some initial factor endowments, but the opposite result may obtain for other factor endowments. © 1990.