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Optimal International Taxation and Growth Rate Convergence: Tax Competition vs. Coordination

  • Assaf Razin
  • Chi-Wa Yuen

Optimal international taxation and its implications for convergence in long run income growth rates are analyzed in the context of an endogenously growing world economy with perfect capital mobility. Under tax competition (i) the residence principle will maximize national welfare; (ii) the optimal long run tax rate on capital incomes from various sources will be zero in all countries; and (iii) long term per capita income growth rates will be equalized across countries. Under tax coordination, (i) becomes irrelevant while (ii) and (iii) will continue to hold. In other words, optimal tax policies are growth-equalizing with and without international policy coordination. Copyright Kluwer Academic Publishers 1999

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Article provided by Springer & International Institute of Public Finance in its journal International Tax and Public Finance.

Volume (Year): 6 (1999)
Issue (Month): 1 (February)
Pages: 61-78

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Handle: RePEc:kap:itaxpf:v:6:y:1999:i:1:p:61-78
DOI: 10.1023/A:1008647804031
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