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Capital Mobility—a resource curse or blessing? How, when, and for whom?

  • OGAWA Hikaru
  • OSHIRO Jun
  • SATO Yasuhiro

This paper investigates which of the two types of countries—resource-rich or resource-poor—gains from capital market integration and capital tax competition. We develop a framework involving vertical linkages through resource-based inputs as well as international fiscal linkages between resource-rich and resource-poor countries. Our analysis shows that capital market integration causes capital flows from the latter to the former and thus improves production efficiency and global welfare. However, such gains accrue only to resource-poor countries, and capital mobility might even negatively affect resource-rich countries. In response to capital flows, the governments of both types of countries have an incentive to tax capital. We thus conclude that such taxation enables resource-rich countries to exploit their efficiency gains through capital market integration and become winners in the tax game.

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Paper provided by Research Institute of Economy, Trade and Industry (RIETI) in its series Discussion papers with number 12063.

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Length: 35 pages
Date of creation: Oct 2012
Date of revision:
Handle: RePEc:eti:dpaper:12063
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  1. Peter Egger & Tobias Seidel, 2011. "Tax competition, trade liberalization, and imperfect labour markets," Oxford Economic Papers, Oxford University Press, vol. 63(4), pages 722-739, December.
  2. Hikaru Ogawa & Yasuhiro Sato & Toshiki Tamai, 2010. "Who gains from capital market integration: Tax competition between unionized and non-unionized countries," Discussion Papers in Economics and Business 10-18, Osaka University, Graduate School of Economics and Osaka School of International Public Policy (OSIPP).
  3. Sato, Yasuhiro & Thisse, Jacques-Francois, 2007. "Competing for capital when labor is heterogeneous," European Economic Review, Elsevier, vol. 51(8), pages 2054-2079, November.
  4. Elitzur, Ramy & Mintz, Jack, 1996. "Transfer pricing rules and corporate tax competition," Journal of Public Economics, Elsevier, vol. 60(3), pages 401-422, June.
  5. Noriaki Matsushima & Toshihiro Matsumura, 2003. "Mixed oligopoly and spatial agglomeration," Canadian Journal of Economics, Canadian Economics Association, vol. 36(1), pages 62-87, February.
  6. Frederick Van der Ploeg, 2010. "Natural Resources: Curse or Blessing?," CESifo Working Paper Series 3125, CESifo Group Munich.
  7. Dharmapala, Dhammika & Hines Jr., James R., 2009. "Which countries become tax havens?," Journal of Public Economics, Elsevier, vol. 93(9-10), pages 1058-1068, October.
  8. Peralta, Susana & van Ypersele, Tanguy, 2005. "Factor endowments and welfare levels in an asymmetric tax competition game," Journal of Urban Economics, Elsevier, vol. 57(2), pages 258-274, March.
  9. Matsumoto, Mutsumi, 1998. "A note on tax competition and public input provision," Regional Science and Urban Economics, Elsevier, vol. 28(4), pages 465-473, July.
  10. Bretschger, Lucas & Valente, Simone, 2012. "Endogenous growth, asymmetric trade and resource dependence," Journal of Environmental Economics and Management, Elsevier, vol. 64(3), pages 301-311.
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