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Capital Income Tax Coordination and the Income Tax Mix

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Author Info
Huizinga, Harry (Department of Economics, Copenhagen Business School)
Nielsen, Søren Bo (Department of Economics, Copenhagen Business School)

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Abstract

Europe has seen several proposals for tax coordination only in the area of capital income taxation, leaving countries free to adjust their labor taxes. The expectation is that higher capital income tax revenues would cause countries to reduce their labor taxes. This paper shows that such changes in the mix of capital and labor taxes brought on by capital income tax coordination can potentially be welfare reducing. This reflects that in a non-cooperative equilibrium capital income taxes may be more distorting from an international perspective than are labor income taxes. Simulations with a simple model calibrated to EU public finance data suggest that countries indeed lower their labor taxes in response to higher coordinated capital income taxes. The overall welfare effects of capital income tax coordination, however, are estimated to remain positive.

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File URL: http://openarchive.cbs.dk/cbsweb/handle/10398/7582
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Publisher Info
Paper provided by Copenhagen Business School, Department of Economics in its series Working Papers with number 24-2005.

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Length: 35 pages
Date of creation: 14 Oct 2005
Date of revision:
Handle: RePEc:hhs:cbsnow:2005_024

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Postal: Department of Economics, Copenhagen Business School, Solbjerg Plads 3 C, 5. sal, DK-2000 Frederiksberg, Denmark
Phone: 38 15 25 75
Fax: 38 15 26 65
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Web page: http://www.cbs.dk/departments/econ/
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Related research
Keywords: None;

Find related papers by JEL classification:
F20 - International Economics - - International Factor Movements and International Business - - - General
H87 - Public Economics - - Miscellaneous Issues - - - International Fiscal Issues; International Public Goods

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  1. Clemens Fuest & Bernd Huber, 1999. "Can Tax Coordination Work?," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 56(3/4), pages 443-, July.
  2. Konrad, Kai A. & Schjelderup, Guttorm, 1999. "Fortress Building in Global Tax Competition," Journal of Urban Economics, Elsevier, vol. 46(1), pages 156-167, July. [Downloadable!] (restricted)
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  3. Mendoza, Enrique G. & Tesar, Linda L., 2005. "Why hasn't tax competition triggered a race to the bottom? Some quantitative lessons from the EU," Journal of Monetary Economics, Elsevier, vol. 52(1), pages 163-204, January. [Downloadable!] (restricted)
  4. repec:bep:macadv:v:5:y:2005:i:1:p:1142-1142 is not listed on IDEAS
  5. Gatsios, Konstantine & Karp, Larry, 1989. "The Welfare Effects of Imperfect Harmonization of Trade and Industrial Policy," CEPR Discussion Papers 335, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  6. Michael P. Devereux & Rachel Griffith & Alexander Klemm, 2002. "Corporate income tax reforms and international tax competition," Economic Policy, CEPR, CES, MSH, vol. 17(35), pages 449-495, October. [Downloadable!] (restricted)
  7. Kehoe, Patrick J, 1989. "Policy Cooperation among Benevolent Governments May Be Undesirable," Review of Economic Studies, Blackwell Publishing, vol. 56(2), pages 289-96, April. [Downloadable!] (restricted)
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