As a result of tax competition, perhaps, corporate income tax rates have been on a downward trend in European countries. In Europe, the general lowering of corporate income tax rates has coincided with a trend toward privatizing government activities. Huizinga and Nielsen focus on the relationship between capital income taxes and the size of the government production sector. Analogously, one could consider the relationship between labor income taxes and the size of the state sector. In that instance, the model predicts that a formerly state-owned enterprise, after privatization, reduces its payroll.
Privatization also seems to lead to reduced employment levels.
These results hold in both open economy and closed economy versions of the model. The full report is available in PDF format.