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Residence- and source-based capital taxation in open economies with infinitely-lived consumers

Gross, Till, Klein, Paul, Makris, Miltiadis (2020) Residence- and source-based capital taxation in open economies with infinitely-lived consumers. Journal of International Economics, 127 . Article Number 103369. ISSN 0022-1996. (doi:10.1016/j.jinteco.2020.103369) (KAR id:82615)

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In this paper we investigate tax competition in a neoclassical growth model where each country may use both residence- and source-based capital taxes. We show that both types of capital taxes are zero at any interior steady state, just as in a closed economy. For symmetric countries, and even for countries that differ only with respect to size and productivity, we prove analytically and verify numerically that the open-economy policies coincide exactly with the closed-economy policies in all time periods. For countries that are asymmetric in other dimensions, we find that source-based taxes are used to manipulate the intertemporal terms of trade in the short run. Either way, the fiscal externalities of source-based taxes vanish once residence-based taxes are allowed.

Item Type: Article
DOI/Identification number: 10.1016/j.jinteco.2020.103369
Uncontrolled keywords: Residence principle, Capital tax, competition, Dynamic optimal, taxation, Open economy, Ramsey taxation
Divisions: Divisions > Division of Human and Social Sciences > School of Economics
Depositing User: Miltos Makris
Date Deposited: 25 Aug 2020 14:59 UTC
Last Modified: 15 Aug 2022 23:00 UTC
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