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Convergence in Growth Rates: The Role of Capital Mobility and International Taxation

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  • Razin, Assaf
  • Yuen, Chi-Wa

Abstract

We consider the role of capital mobility and international taxation in explaining the observed diversity in long-term income growth rates. Under perfect capital mobility, international differences in taxes will not matter for total growth differentials. Policy differences have a role to play in per capita growth differentials, however, when they lead to a divergence in the after-tax rates of return on capital across countries, as when the residence principle is adopted universally. When this is the case, how tax differences affect the growth rates of population and human capital will depend on the relative preference of the individual household towards these two engines of growth. Optimal tax policies are found to be growth-equalizing with and without policy coordination.

Suggested Citation

  • Razin, Assaf & Yuen, Chi-Wa, 1993. "Convergence in Growth Rates: The Role of Capital Mobility and International Taxation," CEPR Discussion Papers 760, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:760
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    Cited by:

    1. Stephen J. Turnovsky, 2000. "Growth in an open economy: some recent developments," Working Paper Research 05, National Bank of Belgium.
    2. Enrique G. Mendoza & Linda L. Tesar, 1995. "Supply-Side Economics in a Global Economy," NBER Working Papers 5086, National Bureau of Economic Research, Inc.
    3. Patrick K. Asea & Mr. Gian M Milesi-Ferretti & Mr. Enrique G. Mendoza, 1995. "Do Taxes Matter for Long-Run Growth? Harberger's Superneutrality Conjecture," IMF Working Papers 1995/079, International Monetary Fund.
    4. Mendoza, Enrique G. & Razin, Assaf & Tesar, Linda L., 1994. "Effective tax rates in macroeconomics: Cross-country estimates of tax rates on factor incomes and consumption," Journal of Monetary Economics, Elsevier, vol. 34(3), pages 297-323, December.
    5. Nouriel Roubini & Gian Maria Milesi-Ferrett, 1994. "Optimal Taxation of Human and Physical Capital in Endogenous Capital Models," NBER Working Papers 4882, National Bureau of Economic Research, Inc.
    6. Arjan Lejour & Harrie Verbon, 1997. "Tax Competition and Redistribution in a Two-Country Endogenous-Growth Model," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 4(4), pages 485-497, November.
    7. Razin, Assaf, 1993. "The Dynamic-Optimizing Approach to the Current Account: Theory and Evidence," Foerder Institute for Economic Research Working Papers 275573, Tel-Aviv University > Foerder Institute for Economic Research.
    8. Laura Alfaro & Sebnem Kalemli-Ozcan & Vadym Volosovych, 2008. "Why Doesn't Capital Flow from Rich to Poor Countries? An Empirical Investigation," The Review of Economics and Statistics, MIT Press, vol. 90(2), pages 347-368, May.
    9. Lin, Hwan C. & Russo, Benjamin, 1999. "A Taxation Policy Toward Capital, Technology and Long-Run Growth," Journal of Macroeconomics, Elsevier, vol. 21(3), pages 463-491, July.
    10. Mr. Geremia Palomba, 2004. "Capital Income Taxation and Economic Growth in Open Economies," IMF Working Papers 2004/091, International Monetary Fund.
    11. Rehme, Gunther, 1995. "Redistribution, wealth tax competition and capital flight in growing economies," Economics Working Papers ECO 1995/09, European University Institute.
    12. Rehme, G., 1997. "Economic Growth, (Re-)Distributive Policies, Capital Mobility and Tax Competition in Open Economies," Economics Working Papers eco97/24, European University Institute.
    13. Nouriel Roubini & Mr. Gian M Milesi-Ferretti, 1994. "Taxation and Endogenous Growth in Open Economies," IMF Working Papers 1994/077, International Monetary Fund.
    14. Laura Alfaro & Sebnem Kalemli-Ozcan & Vadym Volosovych, 2007. "Capital Flows in a Globalized World: The Role of Policies and Institutions," NBER Chapters, in: Capital Controls and Capital Flows in Emerging Economies: Policies, Practices, and Consequences, pages 19-72, National Bureau of Economic Research, Inc.
    15. Mendoza, Enrique G., 1997. "Terms-of-trade uncertainty and economic growth," Journal of Development Economics, Elsevier, vol. 54(2), pages 323-356, December.
    16. Minea, Alexandru, 2008. "The Role of Public Spending in the Growth Theory Evolution," Journal for Economic Forecasting, Institute for Economic Forecasting, vol. 5(2), pages 99-120, June.
    17. Razin, Assaf & Yuen, Chi-Wa, 1996. "Capital income taxation and long-run growth: New perspectives," Journal of Public Economics, Elsevier, vol. 59(2), pages 239-263, February.
    18. Turnovsky, Stephen J., 1996. "Fiscal policy, growth, and macroeconomic performance in a small open economy," Journal of International Economics, Elsevier, vol. 40(1-2), pages 41-66, February.
    19. José Manuel Gonález-Páramo & Pablo Hernandez de Cos, 2006. "Tax Reform in Perspective: The Role of the Public Sector in Spain Along the Process of European Integration," International Center for Public Policy Working Paper Series, at AYSPS, GSU paper0603, International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University.
    20. Lejour, A.M., 1995. "Integrating or desintegrating welfare states? : A qualitative study to the consequences of economic integration on social insurance," Other publications TiSEM eceb51dc-bd45-4570-b81c-0, Tilburg University, School of Economics and Management.

    More about this item

    Keywords

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    JEL classification:

    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • J13 - Labor and Demographic Economics - - Demographic Economics - - - Fertility; Family Planning; Child Care; Children; Youth
    • J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models

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