Does the Open Economy Assumption Really Mean That Labor Bears the Burden of a Capital Income Tax?
AbstractThe conventional view holds that domestic labor, not domestic capital, bears most of the long-run burden of a corporate income tax in an open economy due to the ability of capital to move across borders. This result assumes that domestic and foreign products (as well as investments) are perfect substitutes. This paper includes imperfect product substitution within a multi-sector open-economy model, and shows that much of the burden may fall on capital. To be sure, if savings falls sufficiently, much of the burden shifts to labor, but this fact also holds in a closed economy. Hence, the debate about tax incidence must focus more on the savings response and less on whether an economy is open or closed.
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Bibliographic InfoArticle provided by De Gruyter in its journal The B.E. Journal of Economic Analysis & Policy.
Volume (Year): advances.6 (2006)
Issue (Month): 1 ()
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Find related papers by JEL classification:
- H22 - Public Economics - - Taxation, Subsidies, and Revenue - - - Incidence
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- Wiji Arulampalam & Michael P Devereux & Giorgia Maffini, 2007.
"The Direct Incidence of Corporate Income Tax on Wages,"
0707, Oxford University Centre for Business Taxation.
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- Neumann, Rebecca & Holman, Jill & Alm, James, 2009. "Globalization and tax policy," The North American Journal of Economics and Finance, Elsevier, vol. 20(2), pages 193-211, August.
- George R. Zodrow, 2008. "The Property Tax Incidence Debate and the Mix of State and Local Finance of Local Public Expenditures," Working Papers 0801, Oxford University Centre for Business Taxation.
- R. Alison Felix, 2007. "The incidence of capital taxation and the magnitude of its burden," Regional Research Working Paper RRWP 07-02, Federal Reserve Bank of Kansas City.
- Jennifer C. Gravelle, 2011. "Incidencia del impuesto de renta a las sociedades: revisión y análisis de las estimaciones de equilibrio general," Revista de Economía Institucional, Universidad Externado de Colombia - Facultad de Economía, vol. 13(24), pages 153-191, January-J.
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