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Optimal Time-Consistent Taxation with International Mobility Of Capital

Author

Listed:
  • Klein Paul

    () (University of Western Ontario)

  • Quadrini Vincenzo

    () (University of Southern California)

  • Rios-Rull Jose-Victor

    () (University of Pennsylvania)

Abstract

The United States relies for its government revenues more on the taxation of capital relative to the taxation of labor than countries in continental Europe do. In this paper we ask what can account for this. Our approach is to look at Markov perfect equilibria of a two-country growth model where both governments use labor, capital and corporate taxes to finance exogenously given streams of public expenditure under period-by-period balanced budget constraints. There is no commitment technology and the equilibrium policies are time-consistent. We find that differences in productivity, size, and government spending can account for the heavy American reliance on capital taxation.

Suggested Citation

  • Klein Paul & Quadrini Vincenzo & Rios-Rull Jose-Victor, 2005. "Optimal Time-Consistent Taxation with International Mobility Of Capital," The B.E. Journal of Macroeconomics, De Gruyter, vol. 5(1), pages 1-36, June.
  • Handle: RePEc:bpj:bejmac:v:advances.5:y:2005:i:1:n:2
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    Citations

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    Cited by:

    1. Gross, Till, 2014. "Equilibrium capital taxation in open economies under commitment," European Economic Review, Elsevier, vol. 70(C), pages 75-87.
    2. Catarina Reis, 2013. "Taxation without commitment," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 52(2), pages 565-588, March.
    3. Cees Withagen & Alex Halsema, 2013. "Tax competition leading to strict environmental policy," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 20(3), pages 434-449, June.
    4. Niemann, Stefan, 2011. "Dynamic monetary–fiscal interactions and the role of monetary conservatism," Journal of Monetary Economics, Elsevier, vol. 58(3), pages 234-247.
    5. Mark Aguiar & Manuel Amador, 2011. "Growth in the Shadow of Expropriation," The Quarterly Journal of Economics, Oxford University Press, vol. 126(2), pages 651-697.
    6. Wozny Lukasz & Growiec Jakub, 2012. "Intergenerational Interactions in Human Capital Accumulation," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 12(1), pages 1-47, June.
    7. Kankanamge, Sumudu & Weitzenblum, Thomas, 2016. "Time-consistent unemployment insurance," TSE Working Papers 16-657, Toulouse School of Economics (TSE).
    8. Huizinga, Harry & Nielsen, Søren Bo, 2008. "Must losing taxes on saving be harmful?," Journal of Public Economics, Elsevier, vol. 92(5-6), pages 1183-1192, June.
    9. Huizinga, Harry & Nielsen, Søren Bo, 2005. "Capital Income Tax Coordination and the Income Tax Mix," Working Papers 24-2005, Copenhagen Business School, Department of Economics.
    10. Desbonnet, Audrey & Kankanamge, Sumudu, 2017. "Public Debt And Aggregate Risk," Macroeconomic Dynamics, Cambridge University Press, vol. 21(08), pages 1996-2032, December.
    11. Mateos-Planas, Xavier, 2009. "Demographics and the politics of capital taxation in a life-cycle economy," Discussion Paper Series In Economics And Econometrics 909, Economics Division, School of Social Sciences, University of Southampton.
    12. Andrea Colciago, 2007. "Distortionary Taxation, Rule of Thumb Consumers and the Effect of Fiscal Reforms," Working Papers 113, University of Milano-Bicocca, Department of Economics, revised 2007.
    13. Eva de Francisco, 2005. "Limited Participation, Income Distribution and Capital Account Liberalization," Computing in Economics and Finance 2005 454, Society for Computational Economics.
    14. Quadrini, Vincenzo, 2005. "Policy commitment and the welfare gains from capital market liberalization," European Economic Review, Elsevier, vol. 49(8), pages 1927-1951, November.
    15. Niemann, S & Pichler, P & Sorger, G, 2008. "Optimal Fiscal and Monetary Policy Without Commitment," Economics Discussion Papers 2897, University of Essex, Department of Economics.
    16. repec:eee:dyncon:v:85:y:2017:i:c:p:90-122 is not listed on IDEAS
    17. Di Bartolomeo Giovanni & Tirelli Patrizio, 2016. "Public finance and the optimal inflation rate," wp.comunite 00128, Department of Communication, University of Teramo.

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