This paper argues that increased factor mobility incurs the risk of dismantling the welfare state, even though this state may have useful allocative functions. It will be difficult to finance the welfare state with taxes on capital and it may even be necessary to subsidize this factor in the sense that some of the infrastructure it uses will have to be covered by taxes on other factors. In general, redistribution activities are underprovided since they provide other countries with positive policy externalities. To overcome these difficulties and to make competition among welfare states workable, the paper suggests taxing capital income on a cash flow basis and other incomes on the basis of a nationality principle.
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Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number
CESifo Working Paper No. 153.
Find related papers by JEL classification: H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General H70 - Public Economics - - State and Local Government; Intergovernmental Relations - - - General
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Weiss, Yoram, 1976.
"The Wealth Effect in Occupational Choice,"
International Economic Review,
Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 17(2), pages 292-307, June.
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