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Global capital markets, direct taxation and the redistribution of income


  • Valpy FitzGerald


Standard fiscal theory suggests that taxation should be heaviest on the least mobile factors of production -- for both efficiency and revenue reasons. A shift in tax burdens from capital to labour as economies become globally integrated is thus justified. This theoretical tradition (founded by Ramsay and continued by Mirrlees and Lucas) assumes by construction that profit taxes reduce investment and growth; and while sensitive to inter-generational equity, sidesteps the issue of income distribution within generations. In contrast, starting from Keynes’ critique of these assumptions and building on modern endogenous growth models, it can be shown that profit taxation is not necessarily injurious to productive investment. In practice, moreover, the effect of globalisation has not been to reduce tax rates on capital, but rather to erode the tax base itself (i.e. ‘tax evasion’). Improved information exchange between tax authorities, which is now being driven by fiscal insolvency in developed countries, would allow tax incidence to be shifted so as to improve income distribution within OECD countries. Such cooperation could also permit the replacement of the current discretionary system of fiscal transfers from rich to poor countries (‘development aid’) by equitable sharing of global capital tax revenue.

Suggested Citation

  • Valpy FitzGerald, 2012. "Global capital markets, direct taxation and the redistribution of income," International Review of Applied Economics, Taylor & Francis Journals, vol. 26(2), pages 241-252, November.
  • Handle: RePEc:taf:irapec:v:26:y:2012:i:2:p:241-252
    DOI: 10.1080/02692171.2011.640313

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    References listed on IDEAS

    1. Mario Mansour & Michael Keen, 2009. "Revenue Mobilization in Sub-Saharan Africa; Challenges from Globalization," IMF Working Papers 09/157, International Monetary Fund.
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