Competition and Co-ordination in International Capital Income Taxation
The paper analyses gains from international tax co-ordination. Focussing on capital income taxes in a two country model, the main result is that gains from co-ordination, or from tax harmonisation, are by far smaller than is normally assumed if the countries tax capital income according to the residence principle. In particular, we show that equilibria under this tax regime are constrained Pareto-optimal so that there are never gains for both countries. With residence taxation, tax rate harmonisation accompanied by inter-governmental transfers only redistribute income from the low tax country to the high tax country. This pictures changes, however, when the capital exporting country applies the source principle instead of the residence principle.
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Volume (Year): 56 (1999)
Issue (Month): 1 (March)
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