Understanding the "Problem of Economic Development": the Role of Factor Mobility and International Taxation
36 Pages Posted: 17 Jun 1999 Last revised: 10 Jun 2004
Date Written: May 1999
The problem of economic development,' as Lucas (1988) states it, is the problem of accounting for the observed diversity in levels and rates of growth of per capita income across countries and across time. We study conditions under which capital mobility and labor mobility (two seemingly income-equalizing forces) may interact with cross-country differences in income tax rates and income tax principles (two seemingly income-diverging forces) to generate such diversity. As a corollary, we also examine when countries with different initial endowments may finally converge in their income levels.
Suggested Citation: Suggested Citation