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Taxing capital and labor when both factors are imperfectly mobile internationally

Author

Listed:
  • Hippolyte D'Albis

    () (PSE - Paris School of Economics)

  • Agnès Bénassy-Quéré

    (PSE - Paris School of Economics)

  • Amélie Schurich-Rey

    (UP1 - Université Panthéon-Sorbonne)

Abstract

We revisit the standard theoretical model of tax competition to consider imperfect mobility of both capital and labor. We show that the mobility of one factor affects the taxation of both factors, and that the race-to-the-bottom narrative (with burden shifting) applies essentially to capital exporting countries. We test our predictions for a panel of 28 OECD countries over 1997-2014. We find capital taxation to be less sensitive to capital mobility in net capital importing countries than for net capital exporters. We also show that labor mobility has a negative impact on labor taxation but a positive impact on capital taxation. Finally, we show evidence of a non-linear effect of labor mobility on capital taxation depending on the level of skills.

Suggested Citation

  • Hippolyte D'Albis & Agnès Bénassy-Quéré & Amélie Schurich-Rey, 2018. "Taxing capital and labor when both factors are imperfectly mobile internationally," Working Papers halshs-01851492, HAL.
  • Handle: RePEc:hal:wpaper:halshs-01851492
    Note: View the original document on HAL open archive server: https://halshs.archives-ouvertes.fr/halshs-01851492
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    Keywords

    tax competition; globalization; imperfect factor mobility;

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