Coordination of Capital Taxation Among a Large Number of Asymmetric Counties

Tilburg University, CentER Working Paper No. 1998-137

Posted: 21 Jun 1999

See all articles by Tanguy Van Ypersele

Tanguy Van Ypersele

National Center for Scientific Research (CNRS) - Research Group in Quantitative Saving (GREQAM); Centre for Economic Policy Research (CEPR)

Date Written: 1998

Abstract

We examine international fiscal coordination in a world where markets are integrated but national governments are sovereign. Consequences of the liberalization of the capital market on national fiscal policies and possible remedies to resulting inefficiencies are analyzed. A simple model, with N countries where competitive firms produce an homogeneous good using mobile capital and immobile labor is considered. Fiscal competition arises between governments that have to tax capital and labor in order to raise fixed amount of revenue. It is shown that capital mobility improves the capital allocation among countries as it enables capital owners to invest it in the country where capital is scarce. But fiscal competition leads to asymmetric capital taxation among countries and thus to a distortion on the international capital market. Two fiscal reforms are considered: the introduction of a minimum capital tax level and the imposition of a tax range, i.e. a minimum plus a maximum capital tax level. We show that the minimum tax reform is never prefered to fiscal competition by all countries while tax range reforms are unanimously accepted when it imposes convergence to the extreme taxes and it does not change the international remuneration of capital.

JEL Classification: F20, F42, H87, D72

Suggested Citation

Van Ypersele, Tanguy, Coordination of Capital Taxation Among a Large Number of Asymmetric Counties (1998). Tilburg University, CentER Working Paper No. 1998-137. Available at SSRN: https://ssrn.com/abstract=166458

Tanguy Van Ypersele (Contact Author)

National Center for Scientific Research (CNRS) - Research Group in Quantitative Saving (GREQAM) ( email )

Centre de la Vieille Charité
2 rue de la Charité
Marseille, 13002
France
+33 4 4293 5983 (Phone)
+33 4 4293 0968 (Fax)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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