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Taxation of Mobile Factors as Insurance under Uncertainty

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  • Kangoh Lee
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    Abstract

    This paper considers the effects of the taxation of mobile factors, i.e., capital, under uncertainty. The wages earned by residents of a jurisdiction are uncertain due to random shocks. Since the uncertain wages in a jurisdiction depend on the amount of mobile capital employed in the jurisdiction, and since taxation alters the quantity of capital employed, taxation affects the riskiness of uncertain wages. In particular, the taxation of capital moderates the fluctuation of uncertain wages, thereby providing insurance. For this reason, jurisdictions use distortionary capital taxation even if lump-sum taxation is available. In addition, this insurance effect counteracts the tendency toward too low tax rates on capital arising from tax competition, and possibly improves the efficiency of tax competition. Copyright The editors of the "Scandinavian Journal of Economics", 2003 .

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    Bibliographic Info

    Article provided by Wiley Blackwell in its journal The Scandinavian Journal of Economics.

    Volume (Year): 106 (2004)
    Issue (Month): 2 (06)
    Pages: 253-271

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    Handle: RePEc:bla:scandj:v:106:y:2004:i:2:p:253-271

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    Web page: http://onlinelibrary.wiley.com/journal/10.1111/(ISSN)1467-9442

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    Cited by:
    1. Paolo Panteghini, 2006. "The Capital Structure of Multinational Companies Under Tax Competition," Working Papers ubs0606, University of Brescia, Department of Economics.
    2. Koethenbuerger, Marko & Lockwood, Ben, 2010. "Does tax competition really promote growth?," Journal of Economic Dynamics and Control, Elsevier, vol. 34(2), pages 191-206, February.
    3. Mauro Ghinamo & Paolo Panteghini & Federico Revelli, 2010. "FDI determination and corporate tax competition in a volatile world," International Tax and Public Finance, Springer, vol. 17(5), pages 532-555, October.
    4. Michele Moretto & Paolo Panteghini & Sergio Vergalli, 2013. "Tax Competition, Investment Irreversibility and the Provision of Public Goods," Working Papers 2013.66, Fondazione Eni Enrico Mattei.
    5. Kangoh Lee, 2012. "Why is mobile capital taxed?," Journal of Economics, Springer, vol. 107(2), pages 157-181, October.
    6. Kalamov, Zarko Y., 2013. "Risk sharing and the efficiency of public good provision under tax competition," Regional Science and Urban Economics, Elsevier, vol. 43(4), pages 676-683.

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