Distributional Consequences of Capital Tax Coordination
Wirtschafts Universitat Wien Discussion Paper No. 6
15 Pages Posted: 31 Jan 2007
Date Written: 2005
Abstract
This paper has two ambitions. First, we review the economic literature on tax coordination. Second, we argue that the taxation of capital is not an issue of efficiency, but instead an issue of equity. In particular, capital tax coordination can alter the vertical distribution of income between the production factors capital and labour. Capital is in perfectly elastic supply in a small open economy. Therefore the tax incidence falls to the immobile factor, labour. By contrast, capital is in inelastic supply at the international level, and therefore the capital tax incidence falls completely on capital, without welfare losses of taxation.
Keywords: Tax competition, tax coordination, international taxation, distribution
JEL Classification: H87
Suggested Citation: Suggested Citation
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