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Capital Income Taxation in the Globalized World

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  • Assaf Razin
  • Efraim Sadka

Abstract

The behavior of taxes on capital income in the recent decades points to the notion that international tax competition that follows globalization of capital markets put strong downward pressures on the taxation of capital income; a race to the bottom. This behavior has been perhaps most pronounced in the EU-15 following the single market act of 1992. The 2004 enlargement of the EU with 10 new entrants put a strong downward pressure on capital income taxation for the EU-15 countries. Tax havens, and the inadequacy of cooperation among national tax authorities in the OECD in information exchanges, put binding ceilings on how much foreign-source capital income can be taxed. What then are the implications for the taxes on domestic-source capital income? The paper demonstrates that even if some enforcement of taxation on foreign-source capital income is feasible, a poor enforcement of international taxes would generate political processes that would reduce significantly the domestic-source capital income taxation.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 10630.

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Date of creation: Jul 2004
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Handle: RePEc:nbr:nberwo:10630

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  1. Peter A. Diamond & J. A. Mirrlees, 1968. "Optimal Taxation and Public Production," Working papers 22, Massachusetts Institute of Technology (MIT), Department of Economics.
  2. Maurice Obstfeld & Alan M. Taylor, 2002. "Globalization and Capital Markets," NBER Working Papers 8846, National Bureau of Economic Research, Inc.
  3. Assaf Razin & Efraim Sadka & Phillip Swagel, 2004. "Capital income taxation under majority voting with aging population," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 140(3), pages 476-495, September.
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Cited by:
  1. Hannes Winner, 2005. "Has Tax Competition Emerged in OECD Countries? Evidence from Panel Data," International Tax and Public Finance, Springer, vol. 12(5), pages 667-687, September.
  2. Manmohan S. Kumar & Dennis P. Quinn, 2012. "Globalization and Corporate Taxation," IMF Working Papers 12/252, International Monetary Fund.

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