IDEAS home Printed from https://ideas.repec.org/p/kyo/wpaper/613.html
   My bibliography  Save this paper

Capital Income Taxation and Specialization Patterns: Investment Tax vs. Saving Tax

Author

Listed:
  • Yoshiyasu Ono

    (Institute of Social and Economic Research, Osaka University)

  • Akihisa Shibata

    (Institute of Economic Research, Kyoto University)

Abstract

Unless free international lending/borrowing is allowed, domestic saving equals domestic investment and hence saving and investment taxes have the identical effect, as is the case in a closed-economy context. However, if it is allowed, households can accumulate foreign assets besides domestic capital and hence saving and investment are separated, causing the two taxes to have different effects. Using a two-sector growth model, we show that the two taxes generate completely different effects on industrial structure. The investment tax always shrinks the capital-intensive sector whereas the saving tax may well expand it.

Suggested Citation

  • Yoshiyasu Ono & Akihisa Shibata, 2006. "Capital Income Taxation and Specialization Patterns: Investment Tax vs. Saving Tax," KIER Working Papers 613, Kyoto University, Institute of Economic Research.
    • Handle: RePEc:kyo:wpaper:613
    as

    Download full text from publisher

    File URL: http://www.kier.kyoto-u.ac.jp/DP/DP613.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. repec:bla:ecorec:v:57:y:1981:i:158:p:251-60 is not listed on IDEAS
    2. Lejour, Arjan M. & Verbon, Harrie A. A., 1998. "Source-based versus residence-based capital income taxes in a dynamic model," European Journal of Political Economy, Elsevier, vol. 14(3), pages 529-541, August.
    3. Mountford, A., 1996. "Trade dynamics and endogenous growth: an overlapping generations analysis," Discussion Paper Series In Economics And Econometrics 9621, Economics Division, School of Social Sciences, University of Southampton.
    4. A. Lans Bovenberg, 1992. "Residence-and source-based taxation of capital income in an overlapping generations model," Journal of Economics, Springer, vol. 56(3), pages 267-295, October.
    5. Ihori, Toshihiro, 1991. "Capital Income Taxation in a World Economy: A Territorial System versus a Residence System," Economic Journal, Royal Economic Society, vol. 101(407), pages 958-965, July.
    6. Yasushi Iwamoto & Akihisa Shibata, 1999. "Foreign Tax Credit and the Current Account," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 6(2), pages 131-148, May.
    7. Lawrence H. Summers, 1988. "Tax Policy and International Competitiveness," NBER Chapters, in: International Aspects of Fiscal Policies, pages 349-386, National Bureau of Economic Research, Inc.
    8. Stephen J. Turnovsky, 1997. "International Macroeconomic Dynamics," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262201119, April.
    9. Rosenzweig, Mark R & Wolpin, Kenneth I, 1993. "Credit Market Constraints, Consumption Smoothing, and the Accumulation of Durable Production Assets in Low-Income Countries: Investment in Bullocks in India," Journal of Political Economy, University of Chicago Press, vol. 101(2), pages 223-244, April.
    10. Yoshiyasu Ono & Akihisa Shibata, 2005. "Fiscal Spending, Relative‐Price Dynamics, and Welfare in a World Economy," Review of International Economics, Wiley Blackwell, vol. 13(2), pages 216-236, May.
    11. Jacob Frenkel & Assaf Razin & Efraim Sadka, 1991. "International Taxation in an Integrated World," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262061430, April.
    12. Koichi Futagami & Akihiko Kaneko & Yoshiyasu Ono & Akihisa Shibata, 2008. "International Asset Trade, Capital Income Taxation, and Specialization Patterns," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 10(5), pages 743-763, October.
    13. Zhiqi Chen, 1992. "Long-Run Equilibria in a Dynamic Heckscher-Ohlin Model," Canadian Journal of Economics, Canadian Economics Association, vol. 25(4), pages 923-943, November.
    14. Richard A. Brecher & Zhiqi Chen & Ehsan U. Choudhri, 2002. "Absolute and Comparative Advantage, Reconsidered: The Pattern of International Trade with Optimal Saving," Review of International Economics, Wiley Blackwell, vol. 10(4), pages 645-656, November.
    15. repec:bla:econom:v:66:y:1999:i:262:p:209-24 is not listed on IDEAS
    16. repec:cup:macdyn:v:3:y:1999:i:4:p:482-505 is not listed on IDEAS
    17. Masao Ogaki & Andrew Atkeson, 1997. "Rate Of Time Preference, Intertemporal Elasticity Of Substitution, And Level Of Wealth," The Review of Economics and Statistics, MIT Press, vol. 79(4), pages 564-572, November.
    18. Steger, Thomas M., 2000. "Economic growth with subsistence consumption," Journal of Development Economics, Elsevier, vol. 62(2), pages 343-361, August.
    19. Ogaki, Masao & Zhang, Qiang, 2001. "Decreasing Relative Risk Aversion and Tests of Risk Sharing," Econometrica, Econometric Society, vol. 69(2), pages 515-526, March.
    20. Feldstein, Martin & Horioka, Charles, 1980. "Domestic Saving and International Capital Flows," Economic Journal, Royal Economic Society, vol. 90(358), pages 314-329, June.
    21. R. Manning, 1981. "Specialization and Dynamics in a Trade Model," The Economic Record, The Economic Society of Australia, vol. 57(3), pages 251-260, September.
    22. Yoshiyasu Ono & Akihisa Shibata, 2006. "Long‐run Specialization," Review of International Economics, Wiley Blackwell, vol. 14(1), pages 1-15, February.
    23. Peter Birch Sørensen, 1990. "On the Welfare Gains From International Fiscal Coordination," Discussion Papers 90-04, University of Copenhagen. Department of Economics.
    24. H. Oniki & H. Uzawa, 1965. "Patterns of Trade and Investment in a Dynamic Model of International Trade," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 32(1), pages 15-37.
    25. Stiglitz, Joseph E, 1970. "Factor Price Equalization in a Dynamic Economy," Journal of Political Economy, University of Chicago Press, vol. 78(3), pages 456-488, May-June.
    26. Atkeson, Andrew & Ogaki, Masao, 1996. "Wealth-varying intertemporal elasticities of substitution: Evidence from panel and aggregate data," Journal of Monetary Economics, Elsevier, vol. 38(3), pages 507-534, December.
    27. Giovannini, Alberto, 1990. "International capital mobility and capital-income taxation : Theory and policy," European Economic Review, Elsevier, vol. 34(2-3), pages 480-488, May.
    28. Francesc Obiols-Homs & Carlos Urrutia, 2005. "Transitional dynamics and the distribution of assets," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 25(2), pages 381-400, February.
    29. Bianconi, Marcelo, 1995. "Fiscal policy in a simple two-country dynamic model," Journal of Economic Dynamics and Control, Elsevier, vol. 19(1-2), pages 395-419.
    30. Easterly, William, 1994. "Economic stagnation, fixed factors, and policy thresholds," Journal of Monetary Economics, Elsevier, vol. 33(3), pages 525-557, June.
    31. Obstfeld,Maurice & Taylor,Alan M., 2005. "Global Capital Markets," Cambridge Books, Cambridge University Press, number 9780521671798, October.
    32. repec:bla:reviec:v:10:y:2002:i:4:p:645-56 is not listed on IDEAS
    33. Fischer, Stanley & Frenkel, Jacob A., 1972. "Investment, the two-sector model and trade in debt and capital goods," Journal of International Economics, Elsevier, vol. 2(3), pages 211-233, August.
    34. Kiminori Matsuyama, 1988. "Terms-of-Trade, Factor Intensities and the Current Account in a Life-Cycle Model," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 55(2), pages 247-262.
    35. Baxter, Marianne, 1992. "Fiscal Policy, Specialization, and Trade in the Two-Sector Model: The Return of Ricardo?," Journal of Political Economy, University of Chicago Press, vol. 100(4), pages 713-744, August.
    36. Bovenberg, A.L., 1992. "Residence- and source-based taxation of capital income in an overlapping generations model," Other publications TiSEM 12d54ff8-8cd9-4648-9753-7, Tilburg University, School of Economics and Management.
    37. Chatterjee, Satyajit & Ravikumar, B., 1999. "Minimum Consumption Requirements: Theoretical And Quantitative Implications For Growth And Distribution," Macroeconomic Dynamics, Cambridge University Press, vol. 3(4), pages 482-505, December.
    38. Ikeda, Shinsuke & Ono, Yoshiyasu, 1992. "Macroeconomic Dynamics in a Multi-country Economy: A Dynamic Optimization Approach," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 33(3), pages 629-644, August.
    39. Qiang Zhang & Masao Ogaki, 2004. "Decreasing Relative Risk Aversion, Risk Sharing, and the Permanent Income Hypothesis," Journal of Business & Economic Statistics, American Statistical Association, vol. 22, pages 421-430, October.
    40. Iwamoto, Yasushi & Shibata, Akihisa, 1991. "Capital income taxation and the current account in a small open economy," Journal of International Money and Finance, Elsevier, vol. 10(4), pages 480-496, December.
    41. Robert A. Becker, 1980. "On the Long-Run Steady State in a Simple Dynamic Model of Equilibrium with Heterogeneous Households," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 95(2), pages 375-382.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Yoshiyasu Ono & Akihisa Shibata, 2010. "Time Patience and Specialization Patterns in the Presence of Asset Trade," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 42(1), pages 93-112, February.
    2. Koichi Futagami & Akihiko Kaneko & Yoshiyasu Ono & Akihisa Shibata, 2008. "International Asset Trade, Capital Income Taxation, and Specialization Patterns," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 10(5), pages 743-763, October.
    3. Yasushi Iwamoto & Akihisa Shibata, 1999. "Foreign Tax Credit and the Current Account," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 6(2), pages 131-148, May.
    4. Yasushi Iwamoto & Akihisa Shibata, 2008. "International and Intergenerational Aspects of Capital Income Taxation in an Endogenously Growing World Economy," Review of International Economics, Wiley Blackwell, vol. 16(2), pages 383-399, May.
    5. Claustre Bajona & Timothy Kehoe, 2010. "Trade, Growth, and Convergence in a Dynamic Heckscher-Ohlin Model," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 13(3), pages 487-513, July.
    6. Xiaobing Xing & Jiexiang Xu, 2014. "The saving rate and the upgrade of the trade commodity structure in developing countries: A dynamic H-O model under an oligopolistic market structure," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 23(8), pages 1145-1169, December.
    7. Claustre Bajona & Timothy J. Kehoe, 2006. "Demographics in Dynamic Heckscher-Ohlin Models: Overlapping Generations Versus Infinitely Lived Consumers," NBER Working Papers 12566, National Bureau of Economic Research, Inc.
    8. Masao Ogaki & Qiang Zhang, 2000. "Risk Sharing in Village India: the Rule of Decreasing Relative Risk Aversion," Working Papers 00-02, Ohio State University, Department of Economics.
    9. Zhang, Wei-Bin, 2017. "Endogenous wealth and knowledge in Heckscher-Ohlin theory," International Journal of Development and Conflict, Gokhale Institute of Politics and Economics, vol. 7(2), pages 119-137.
    10. Mr. Ales Bulir & Alma Romero-Barrutieta & Jose Daniel Rodríguez-Delgado, 2011. "The Dynamic Implications of Debt Relief for Low-Income Countries," IMF Working Papers 2011/157, International Monetary Fund.
    11. Partha Sen & Koji Shimomura, 2017. "Convergence and Overtaking in a Dynamic two Country Model," Open Economies Review, Springer, vol. 28(1), pages 107-124, February.
    12. Daisuke Amano & Jun-ichi Itaya & Kazuo Mino, 2014. "Trade Structure and Growth Effects of Taxation in a Two-Country World," KIER Working Papers 891, Kyoto University, Institute of Economic Research.
    13. repec:hok:dpaper:273 is not listed on IDEAS
    14. Akihiko Kaneko, 2006. "Specialization in a dynamic trade model: An overlapping generations case," International Economic Journal, Taylor & Francis Journals, vol. 20(3), pages 357-368.
    15. Fukao Kyoji & Hamada Koichi, 1994. "International Trade and Investment under Different Rates of Time Preference," Journal of the Japanese and International Economies, Elsevier, vol. 8(1), pages 22-52, March.
    16. Jonathan Temple & Huikang Ying & Patrick Carter, 2014. "Transfers and Transformations: Remittances, Foreign Aid, and Growth," Bristol Economics Discussion Papers 14/649, School of Economics, University of Bristol, UK, revised 02 Dec 2014.
    17. Bianconi, Marcelo, 1995. "Fiscal policy in a simple two-country dynamic model," Journal of Economic Dynamics and Control, Elsevier, vol. 19(1-2), pages 395-419.
    18. Alvarez-Pelaez, Maria J. & Diaz, Antonia, 2005. "Minimum consumption and transitional dynamics in wealth distribution," Journal of Monetary Economics, Elsevier, vol. 52(3), pages 633-667, April.
    19. Chatterjee, Satyajit & Ravikumar, B., 1999. "Minimum Consumption Requirements: Theoretical And Quantitative Implications For Growth And Distribution," Macroeconomic Dynamics, Cambridge University Press, vol. 3(4), pages 482-505, December.
    20. Bianconi, Marcelo, 1995. "On dynamic real trade models," Economics Letters, Elsevier, vol. 47(1), pages 47-52, January.
    21. Akihiko Yanase & Yukio Karasawa-Ohtashiro, 2019. "Endogenous time preference, consumption externalities, and trade: multiple steady states and indeterminacy," Journal of Economics, Springer, vol. 126(2), pages 153-177, March.

    More about this item

    Keywords

    saving tax; investment tax; two-sector growth model; industrial structure; financial asset trade;
    All these keywords.

    JEL classification:

    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:kyo:wpaper:613. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Makoto Watanabe (email available below). General contact details of provider: https://edirc.repec.org/data/iekyojp.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.