Optimal International Taxation and Growth Rate Convergence: Tax Competition vs. Coordination

Assaf Razin, Chi Wa Yuen

Research output: Contribution to journalArticlepeer-review

Abstract

Optimal international taxation and its implications for convergence in long run income growth rates are analyzed in the context of an endogenously growing world economy with perfect capital mobility. Under tax competition (i) the residence principle will maximize national welfare; (ii) the optimal long run tax rate on capital incomes from various sources will be zero in all countries; and (iii) long term per capita income growth rates will be equalized across countries. Under tax coordination, (i) becomes irrelevant while (ii) and (iii) will continue to hold. In other words, optimal tax policies are growth-equalizing with and without international policy coordination.

Original languageEnglish
Pages (from-to)61-78
Number of pages18
JournalInternational Tax and Public Finance
Volume6
Issue number1
DOIs
StatePublished - 1999

Keywords

  • Capital mobility
  • Growth rate convergence
  • Optimal capital taxation
  • Tax competition
  • Tax coordination

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