Assessing the International Spillover Effects of Capital Income Taxation

INTERNATIONAL TAX AND PUBLIC FINANCE, Vol. 3, Issue 4, 1996

Posted: 4 May 1998

See all articles by Philippe Thalmann

Philippe Thalmann

Swiss Federal Institute of Technology Lausanne - Ecole Polytechnique Federale de Lausanne (EPFL)

Lawrence H. Goulder

Stanford University - Department of Economics; National Bureau of Economic Research (NBER); Resources for the Future

Francois Delorme

Government of Canada - Department of Finance Canada

Abstract

Changes in capital taxes by one economy spill onto other economies with internationally mobile capital. We evaluate these impacts using a two-region, intertemporal general equilibrium model. The foreign economy's unilateral reduction in corporate income taxation has positive but small effects on U.S. welfare. In contrast, unilateral reductions in personal income taxation impose large negative spillovers. The differences result from CIT being source-based and PIT residence-based. The CIT cut reduces tax burdens to U.S. residents who invest abroad, while the PIT cut reduces foreigners' tax burdens only. Through general equilibrium adjustments neglected in simpler models, the PIT cut lowers U.S. residents' welfare.

JEL Classification: F21, F42, H22

Suggested Citation

Thalmann, Philippe and Goulder, Lawrence H. and Delorme, Francois, Assessing the International Spillover Effects of Capital Income Taxation. INTERNATIONAL TAX AND PUBLIC FINANCE, Vol. 3, Issue 4, 1996, Available at SSRN: https://ssrn.com/abstract=4082

Philippe Thalmann (Contact Author)

Swiss Federal Institute of Technology Lausanne - Ecole Polytechnique Federale de Lausanne (EPFL) ( email )

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Lawrence H. Goulder

Stanford University - Department of Economics ( email )

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National Bureau of Economic Research (NBER)

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Resources for the Future

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Francois Delorme

Government of Canada - Department of Finance Canada

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