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Institutional quality and capital taxation

Author

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  • Luis Araujo
  • Paulo Arvate

Abstract

We describe the preferred taxation regime in a small economy with uncertain institutional quality. We obtain that a preferential taxation regime in which taxes can be matched to the mobility of the tax base may be worse off than a non-preferential taxation regime in which taxes are constant across bases with distinct mobility. Since the small economy takes foreign taxes as given, our result is not driven by a downward pressure on revenues caused by unconstrained tax competition. It is instead related to the ability of a non-preferential taxation regime to credibly convey information about the institutional quality of the small economy. We present some empirical evidence which corroborates our results. Copyright Springer Science+Business Media New York 2016

Suggested Citation

  • Luis Araujo & Paulo Arvate, 2016. "Institutional quality and capital taxation," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 23(1), pages 25-47, February.
    • Handle: RePEc:kap:itaxpf:v:23:y:2016:i:1:p:25-47
    DOI: 10.1007/s10797-014-9346-8
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    Cited by:

    1. Romain Houssa & Kelbesa Megersa, 2017. "Institutional quality, economic development and the performance of VAT," BeFinD Working Papers 0115, University of Namur, Department of Economics.

    More about this item

    Keywords

    Non-preferential taxation; Asymmetric information; Poor institutional quality; H20;
    All these keywords.

    JEL classification:

    • H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General

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