Taxes and the Global Allocation of Capital
29 Pages Posted: 13 Oct 2008
Date Written: November 2007
Despite enormous growth in international capital flows, capital-output ratios continue to exhibit substantial heterogeneity across countries. We explore the possibility that taxes, particularly corporate taxes, are a significant source of this heterogeneity. The evidence is mixed. Tax rates computed from tax revenue are inversely correlated with capital-output ratios, as we might expect. However, effective tax rates constructed from official tax rates show little relation to capital - or to revenue-based tax measures. The stark difference between these two tax measures remains an open issue.
Keywords: capital, taxes, capital-output ratio, international capital flows
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