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Optimal Cooperative Taxation in the Global Economy

Author

Listed:
  • Chari, V. V.
  • Nicolini, Juan Pablo
  • Teles, Pedro

Abstract

How should countries cooperate in setting fiscal and trade policies when government expenditures must be financed with distorting taxes? We show that even if countries cannot make explicit transfers to each other, every point on the Pareto frontier is production efficient, so that international trade and capital flows should be effectively free. Trade agreements must be supplemented with fiscal policy agreements. Residence-based income tax systems have advantages over source-based systems. Taxing all household asset income at a country-specific uniform rate and setting the corporate income tax to zero yield efficient outcomes. Value-added taxes should be adjusted at the border.

Suggested Citation

  • Chari, V. V. & Nicolini, Juan Pablo & Teles, Pedro, 2022. "Optimal Cooperative Taxation in the Global Economy," CEPR Discussion Papers 17093, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:17093
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    2. Caldara, Dario & Iacoviello, Matteo & Molligo, Patrick & Prestipino, Andrea & Raffo, Andrea, 2020. "The economic effects of trade policy uncertainty," Journal of Monetary Economics, Elsevier, vol. 109(C), pages 38-59.
    3. Maebayashi, Noritaka & Morimoto, Keiichi, 2024. "Global corporate income tax competition, knowledge spillover, and growth," European Economic Review, Elsevier, vol. 164(C).
    4. Daniel Carroll & Sewon Hur, 2023. "On The Distributional Effects Of International Tariffs," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 64(4), pages 1311-1346, November.
    5. Radek Šauer, 2022. "Corporate Taxation in Open Economies," CESifo Working Paper Series 9942, CESifo.
    6. Santacreu, Ana Maria, 2024. "Comment on: “Optimal Taxation of Multinational Enterprises: A Ramsey Approach”, by Sebastian Dyrda, Guangbin Hong, and Joseph B. Steinberg," Journal of Monetary Economics, Elsevier, vol. 141(C), pages 98-100.
    7. Dyrda, Sebastian & Hong, Guangbin & Steinberg, Joseph B., 2024. "Optimal taxation of multinational enterprises: A Ramsey approach," Journal of Monetary Economics, Elsevier, vol. 141(C), pages 74-97.

    More about this item

    Keywords

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    JEL classification:

    • E60 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General
    • E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory

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