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The Political Economy of Capital Income and Profit Taxation in a Small Open Economy

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  • Huizinga, H.P.
  • Nielsen, S.B.

    (Tilburg University, Center for Economic Research)

Abstract

This paper considers the political economy of the mix of profit, investment and saving taxation in a small open economy where agents generally differ in their shares of profit and other income.In this setting, capital income taxation can have the dual role of financing government spending and of redistributing income.With majority voting, several different constellations of profit, investment and saving taxes can arise.The paper, for instance, can explain why distorting saving taxation exists, even if profits are not taxed to the fullest extent.Alternatively, saving may be subsidized, even if profit and investment are highly taxed.The role of the foreign ownership of domestic firms in explaining capital income taxation is examined for the two cases of majority voting and a representative agent.With majority voting, a higher foreign ownership may induce a shift towards higher profit

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Bibliographic Info

Paper provided by Tilburg University, Center for Economic Research in its series Discussion Paper with number 1996-106.

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Date of creation: 1996
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Handle: RePEc:dgr:kubcen:1996106

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Keywords: taxation; political economy; open economy;

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References

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  1. Frenkel, Jacob & Razin, Assaf & Sadka, Efraim, 1992. "International taxation in an integrated world," MPRA Paper 23266, University Library of Munich, Germany.
  2. Persson, Torsten & Tabellini, Guido, 1991. "The Politics of 1992: Fiscal Policy and European Integration," CEPR Discussion Papers 501, C.E.P.R. Discussion Papers.
  3. Bruce, N., 1991. "A Note on the Taxation of International Capital Income Flows," Working Papers 91-10a, University of Washington, Department of Economics.
  4. Harry Huizinga & Soeren Bo Nielsen, . "Capital Income and Profits Taxation with Foreign Ownerwhip of Firms," EPRU Working Paper Series 95-09, Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics.
  5. Gordon, Roger H, 1986. "Taxation of Investment and Savings in a World Economy," American Economic Review, American Economic Association, vol. 76(5), pages 1086-1102, December.
  6. Harry Huizinga & Søren Bo Nielsen, . "The Coordination of Capital Income and Profit Taxation with Cross-Ownership of Firms," EPRU Working Paper Series 96-17, Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics.
  7. Mayer, Wolfgang, 1984. "Endogenous Tariff Formation," American Economic Review, American Economic Association, vol. 74(5), pages 970-85, December.
  8. Dasgupta, Partha & Stiglitz, Joseph E, 1972. "On Optimal Taxation and Public Production," Review of Economic Studies, Wiley Blackwell, vol. 39(1), pages 87-103, January.
  9. Bucovetsky, Sam & Wilson, John Douglas, 1991. "Tax competition with two tax instruments," Regional Science and Urban Economics, Elsevier, vol. 21(3), pages 333-350, November.
  10. Joseph E. Stiglitz & Partha Dasgupta, 1970. "Differential Taxation, Public Goods, and Economic Efficiency," Cowles Foundation Discussion Papers 299, Cowles Foundation for Research in Economics, Yale University.
  11. Bucovetsky, Sam, 1991. "Choosing tax rates and public expenditure levels using majority rule," Journal of Public Economics, Elsevier, vol. 46(1), pages 113-131, October.
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Cited by:
  1. Jean-Jacques Laffont & Jérome Pouyet, 2000. "The Subsidiarity Bias in Regulation," series 0001, Dipartimento di Scienze Economiche e Metodi Matematici - Università di Bari, revised Jun 2000.

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