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Convergence in Growth Rates: The Role of Capital Mobility and International Taxation

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  • Assaf Razin
  • Chi-Wa Yuen

Abstract

We consider the role of capital mobility and international taxation. In explaining the observed diversity in long-term growth rates. Our major finding is that, under capital mobility, international differences in taxes will not matter for total growth differentials. Policy differences have a role to play in per capita growth differentials, however, when they lead to a divergence in the after-tax rates of return on capital across countries, as when the residence principle is adopted universally. When this is the case, how tax differences affect the growth rates of population and human capital will depend on the relative preference of the individual household towards these two engines of growth. Optimal tax policies are found to be growth-equalizing with and without policy coordination.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 4214.

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Date of creation: Nov 1992
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Publication status: published as Capital Mobility: The Impact on Consumption, Investment and Growth, ed. Leo Leiderman and Assaf Razin, p. 237-257 Cambridge University Press, 1994
Handle: RePEc:nbr:nberwo:4214

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  1. Robert J. Barro & N. Gregory Mankiw & Xavier Sala-i-Martin, 1994. "Capital mobility in Neoclassical models of growth," Economics Working Papers, Department of Economics and Business, Universitat Pompeu Fabra 82, Department of Economics and Business, Universitat Pompeu Fabra.
  2. Gary S. Becker & Kevin M. Murphy & Robert Tamura, 1994. "Human Capital, Fertility, and Economic Growth," NBER Chapters, in: Human Capital: A Theoretical and Empirical Analysis with Special Reference to Education (3rd Edition), pages 323-350 National Bureau of Economic Research, Inc.
  3. King, Robert G & Rebelo, Sergio T, 1993. "Transitional Dynamics and Economic Growth in the Neoclassical Model," American Economic Review, American Economic Association, American Economic Association, vol. 83(4), pages 908-31, September.
  4. Nerlove, Marc & Razin, Assaf & Sadka, Efraim & von Weizsacker, Robert K., 1993. "Comprehensive income taxation, investments in human and physical capital, and productivity," Journal of Public Economics, Elsevier, Elsevier, vol. 50(3), pages 397-406, March.
  5. Gordon, R.H. & Jun, J., 1991. "Taxes and the Form of Ownership of Foreign Corporate Equity," Papers, Yale - Economic Growth Center 652, Yale - Economic Growth Center.
  6. Larry E. Jones & Rodolfo Manuelli, 1990. "A Convex Model of Equilibrium Growth," NBER Working Papers 3241, National Bureau of Economic Research, Inc.
  7. Baumol, William J & Wolff, Edward N, 1988. "Productivity Growth, Convergence, and Welfare: Reply," American Economic Review, American Economic Association, American Economic Association, vol. 78(5), pages 1155-59, December.
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  9. Ogaki, Masao, 1992. "Growth in open economies : A comment," Carnegie-Rochester Conference Series on Public Policy, Elsevier, Elsevier, vol. 36(1), pages 47-56, July.
  10. J. Bradford De Long, . "Productivity Growth, Convergence, and Welfare: Comment," J. Bradford De Long's Working Papers, University of California at Berkeley, Economics Department _129, University of California at Berkeley, Economics Department.
  11. Jacob Frenkel & Assaf Razin & Efraim Sadka, 1991. "International Taxation in an Integrated World," MIT Press Books, The MIT Press, The MIT Press, edition 1, volume 1, number 0262061430, December.
  12. Rebelo, Sergio, 1991. "Long-Run Policy Analysis and Long-Run Growth," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 99(3), pages 500-521, June.
  13. Gary S. Becker & Robert J. Barro, 1986. "A Reformulation of the Economic Theory of Fertility," NBER Working Papers 1793, National Bureau of Economic Research, Inc.
  14. L. Wade, 1988. "Review," Public Choice, Springer, Springer, vol. 58(1), pages 99-100, July.
  15. Buiter, Willem H & Kletzer, Kenneth, 1991. "Persistent Differences in National Productivity Growth Rates with a Common Technology and Free Capital Mobility," CEPR Discussion Papers, C.E.P.R. Discussion Papers 542, C.E.P.R. Discussion Papers.
  16. Chamley, Christophe, 1986. "Optimal Taxation of Capital Income in General Equilibrium with Infinite Lives," Econometrica, Econometric Society, Econometric Society, vol. 54(3), pages 607-22, May.
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  18. Ehrlich, Isaac & Lui, Francis T, 1991. "Intergenerational Trade, Longevity, and Economic Growth," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 99(5), pages 1029-59, October.
  19. Lucas, Robert Jr., 1988. "On the mechanics of economic development," Journal of Monetary Economics, Elsevier, Elsevier, vol. 22(1), pages 3-42, July.
  20. Razin, Assaf & Sadka, Efraim, 1991. "Efficient investment incentives in the presence of capital flight," Journal of International Economics, Elsevier, Elsevier, vol. 31(1-2), pages 171-181, August.
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Cited by:
  1. Assaf Razin, 1993. "The Dynamic-Optimizing Approach to the Current Account: Theory and Evidence," NBER Working Papers 4334, National Bureau of Economic Research, Inc.
  2. José Manuel Gonález-Páramo & Pablo Hernandez de Cos, 2006. "Tax Reform in Perspective: The Role of the Public Sector in Spain Along the Process of European Integration," International Center for Public Policy Working Paper Series, at AYSPS, GSU, International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University paper0603, International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University.
  3. Mendoza, Enrique G., 1997. "Terms-of-trade uncertainty and economic growth," Journal of Development Economics, Elsevier, Elsevier, vol. 54(2), pages 323-356, December.
  4. Laura Alfaro & Sebnem Kalemli-Ozcan, 2004. "Why doesn't capital flow from rich to poor countries? An empirical investigation," 2004 Meeting Papers, Society for Economic Dynamics 53, Society for Economic Dynamics.
  5. Laura Alfaro & Sebnem Kalemli-Ozcan & Vadym Volosovych, 2005. "Capital Flows in a Globalized World: The Role of Policies and Institutions," NBER Working Papers 11696, National Bureau of Economic Research, Inc.
  6. Patrick K. Asea & Gian-Maria Milesi-Ferretti & Enrique G. Mendoza, 1995. "Do Taxes Matter for Long-Run Growth? Harberger's Superneutrality Conjecture," IMF Working Papers 95/79, International Monetary Fund.
  7. Geremia Palomba, 2004. "Capital Income Taxation and Economic Growth in Open Economies," IMF Working Papers 04/91, International Monetary Fund.
  8. Nouriel Roubini & Gian Maria Milesi-Ferrett, 1994. "Taxation and Endogenous Growth in Open Economies," NBER Working Papers 4881, National Bureau of Economic Research, Inc.
  9. Nouriel Roubini & Gian Maria Milesi-Ferrett, 1994. "Optimal Taxation of Human and Physical Capital in Endogenous Capital Models," NBER Working Papers 4882, National Bureau of Economic Research, Inc.
  10. Arjan Lejour & Harrie Verbon, 1997. "Tax Competition and Redistribution in a Two-Country Endogenous-Growth Model," International Tax and Public Finance, Springer, Springer, vol. 4(4), pages 485-497, November.
  11. Turnovsky, Stephen J., 1996. "Fiscal policy, growth, and macroeconomic performance in a small open economy," Journal of International Economics, Elsevier, Elsevier, vol. 40(1-2), pages 41-66, February.
  12. Razin, Assaf & Yuen, Chi-Wa, 1996. "Capital income taxation and long-run growth: New perspectives," Journal of Public Economics, Elsevier, Elsevier, vol. 59(2), pages 239-263, February.
  13. Enrique G. Mendoza & Assaf Razin & Linda L. Tesar, 1994. "Effective Tax Rates in Macroeconomics: Cross-Country Estimates of Tax Rates on Factor Incomes and Consumption," NBER Working Papers 4864, National Bureau of Economic Research, Inc.
  14. Lin, Hwan C. & Russo, Benjamin, 1999. "A Taxation Policy Toward Capital, Technology and Long-Run Growth," Journal of Macroeconomics, Elsevier, Elsevier, vol. 21(3), pages 463-491, July.

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