Integration of the International Capital Markets: the Size of Government and Tax Coordination

37 Pages Posted: 28 May 2004 Last revised: 8 Oct 2009

See all articles by Assaf Razin

Assaf Razin

Tel Aviv University - Eitan Berglas School of Economics; National Bureau of Economic Research (NBER); CESifo (Center for Economic Studies and Ifo Institute); Centre for Economic Policy Research (CEPR)

Efraim Sadka

Tel Aviv University - Eitan Berglas School of Economics; National Bureau of Economic Research (NBER); CESifo (Center for Economic Studies and Ifo Institute); IZA Institute of Labor Economics

Date Written: February 1989

Abstract

International-capital market integration has become a key policy issue in the prospective integration of Europe of 1992. In this context this paper provides a theoretical analysis of the effects of relaxing restrictions on the international flow of capital on the fiscal branch of government: the optimal provision of public goods, the structure of taxation and income redistribution policies. Concerning issues of interdependent economies the paper analyzes the scope of tax coordination. The major findings are: (a) with no administrative barriers to capital flows the optimal policy is to tax income from investment abroad and from investments at home at the same time; (b) the cost of public funds falls and the supply of public goods rises if restrictions on international capital flows are relaxed: (c) the amount of income redistributions increases with the international capital market liberalization; (d) some minimal degree of tax coordination (such as origin-based or source-based tax schemes) is essential for the existence of an equilibrium in an integrated world economy.

Suggested Citation

Razin, Assaf and Sadka, Efraim, Integration of the International Capital Markets: the Size of Government and Tax Coordination (February 1989). NBER Working Paper No. w2863. Available at SSRN: https://ssrn.com/abstract=227231

Assaf Razin (Contact Author)

Tel Aviv University - Eitan Berglas School of Economics ( email )

P.O. Box 39040
Ramat Aviv, Tel Aviv, 69978
Israel
+972 3 640 7303 (Phone)
+972 3 640 9908 (Fax)

National Bureau of Economic Research (NBER) ( email )

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Cambridge, MA 02138
United States

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

HOME PAGE: http://www.CESifo.de

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Efraim Sadka

Tel Aviv University - Eitan Berglas School of Economics ( email )

P.O. Box 39040
Ramat Aviv, Tel Aviv, 69978
Israel
+972 3 640 9712 (Phone)
+972 3 642 8074 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

HOME PAGE: http://www.CESifo.de

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

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