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Taxes and the Global Allocation of Capital

  • David Backus
  • Espen Henriksen
  • Kjetil Storesletten

Despite enormous growth in international capital flows, capital-output ratios continue to exhibit substantial heterogeneity across countries. We explore the possibility that taxes, particularly corporate taxes, are a significant source of this heterogeneity. The evidence is mixed. Tax rates computed from tax revenue are inversely correlated with capital-output ratios, as we might expect. However, effective tax rates constructed from official tax rates show little relation to capital -- or to revenue-based tax measures. The stark difference between these two tax measures remains an open issue.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 13624.

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Date of creation: Nov 2007
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Publication status: published as Backus, David & Henriksen, Espen & Storesletten, Kjetil, 2008. "Taxes and the global allocation of capital," Journal of Monetary Economics, Elsevier, vol. 55(1), pages 48-61, January.
Handle: RePEc:nbr:nberwo:13624
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