Dynamic Optimal Taxation in Open Economies
AbstractThis paper analyzes optimal capital taxation in open economies with strategic interaction in a neo-classical growth model. With a territorial or source-based tax system, I show that optimal capital taxes in steady state are zero for a large open economy, thereby generalizing the result previously established only for the special cases of a closed and a small open economy. If the steady-state assumption is relaxed, optimal capital taxes are still zero when marginal utilities of private and public consumption are bounded, or when the utility function is quasi- linear in consumption. Moreover, in the latter case the solution is also time-consistent. For the residential or world-wide tax principle, however, countries are not able to tax all factors of production, so capital income taxes are generally non-zero except in the limiting cases of a closed or small open economy. Allowing for both residential and territorial taxes restores zero capital taxes.
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Bibliographic InfoPaper provided by Carleton University, Department of Economics in its series Carleton Economic Papers with number 13-06.
Length: 35 pages
Date of creation: 06 Aug 2013
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Publication status: Published: Carleton Economic Papers
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Find related papers by JEL classification:
- H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
- E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-11-16 (All new papers)
- NEP-DGE-2013-11-16 (Dynamic General Equilibrium)
- NEP-MAC-2013-11-16 (Macroeconomics)
- NEP-PBE-2013-11-16 (Public Economics)
- NEP-PUB-2013-11-16 (Public Finance)
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