Globalization and Factor Income Taxation

55 Pages Posted: 7 Mar 2022 Last revised: 1 Feb 2023

See all articles by Pierre Jean Bachas

Pierre Jean Bachas

World Bank

Matthew Fisher-Post

Paris School of Economics (PSE)

Anders Jensen

Harvard University - Harvard Kennedy School (HKS)

Gabriel Zucman

University of California, Berkeley - Department of Economics

Date Written: March 2022

Abstract

How has globalization affected the relative taxation of labor and capital, and why? To address this question we build and analyze a new database of effective macroeconomic tax rates covering 150 countries since 1965, constructed by combining national accounts data with government revenue statistics. We obtain four main findings: (1) The effective tax rates on labor and capital converged globally since the 1960s, due to a 10 percentage-point increase in labor taxation and a 5 percentage-point decline in capital taxation. (2) The decline in capital taxation is concentrated in high-income countries. By contrast, capital taxation increased in developing countries since the 1990s, albeit from a low base. (3) Consistently across a variety of research designs, we find that the rise in capital taxation in developing countries can be explained by a tax-capacity effect of international trade: Trade openness leads to a concentration of economic activity in formal corporate structures, where capital taxes are easier to impose. (4) At the same time, international economic integration reduces statutory tax rates, due to increased tax competition. In high-income countries, this negative tax competition effect of trade has dominated, while in developing countries the positive tax-capacity effect of international trade appears to have prevailed.

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Suggested Citation

Bachas, Pierre Jean and Fisher-Post, Matthew and Jensen, Anders and Zucman, Gabriel, Globalization and Factor Income Taxation (March 2022). NBER Working Paper No. w29819, Available at SSRN: https://ssrn.com/abstract=4051253 or http://dx.doi.org/10.2139/ssrn.4051253

Pierre Jean Bachas (Contact Author)

World Bank ( email )

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Washington, DC 20433
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Matthew Fisher-Post

Paris School of Economics (PSE) ( email )

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Paris, 75014 75014
France

Anders Jensen

Harvard University - Harvard Kennedy School (HKS) ( email )

79 John F. Kennedy Street
Cambridge, MA 02138
United States

Gabriel Zucman

University of California, Berkeley - Department of Economics ( email )

579 Evans Hall
Berkeley, CA 94709
United States

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