Recent international agreements on tax data sharing aim to facilitate residence based taxation of capital and thus mitigate tax competition. I show that residence based capital tax rates can still decline with the number of financially integrated countries when public spending and debt are used strategically. While suboptimal in the steady state, strategic policies persist during transition if ...

In an economy with identical infinitely-lived households that obtain utility from leisure as well as consumption, Chamley (1986) and Judd (1985) have shown that the optimal tax system to pay for an exogenous stream of government purchases involves a zero tax rate on capital in the long run, with tax revenue collected by a distortionary tax on labor income. Extending the results of Hall and Jorg...

a r t i c l e i n f o JEL classification: E62 H22 O41 Keywords: Two-sector model Human capital Optimal factor tax incidence This paper studies the optimal factor tax incidence in a standard two-sector, human capital-based endoge-nous growth model elucidated by Lucas (1988). Capital income taxes generate dynamic inefficiency for capital accumulation and labor income taxes create dynamic ineffici...

Tax-based deficit reduction experiments for the U.S. and EMU-12 are conducted using an open economy model. In welfare terms, raising the consumption tax is the least costly, followed by the labor income tax, then the capital income tax. Use of an open economy model means that the incidence of the consumption tax is borne in part by foreign producers. Among revenue-neutral tax experiments, parti...

This paper introduces “capital ownership neutrality” (CON) and “national ownership neutrality” (NON) as benchmarks for evaluating the desirability of international tax reforms, and applies them to analyze recent U.S. tax reform proposals. Tax systems satisfy CON if they do not distort the ownership of capital assets, which promotes global efficiency whenever the productivity of an investment di...

Why is interest income taxed so much more heavily than other forms of capital income? This differential tax treatment has generated substantial tax arbitrage, resulting in lower tax revenue, efficiency costs, and apparently net gains to rich borrowers and net losses to poor lenders, together suggesting that this tax treatment makes no sense on welfare grounds. In examining this argument more fo...

Wealth inequality is currently rising in rich countries. Expectations that ever more intelligent machines might replace people’s jobs amplify the concerns about an increasingly unequal wealth distribution. We examine how capital tax-financed public investment affects the distribution of wealth when the substitutability between capital and labor changes. We consider a setting with a labor-augmen...

I study the effects of corporate income taxes on a firm’s cost of equity capital. I show theoretically that taxes increase the riskiness of a firm’s after-tax cash flows. The effect arises from the asymmetric treatment of gains and losses in the tax code and applies to both levered and unlevered firms. The main prediction of the model is that firms with lower tax shields have higher expected st...

a r t i c l e i n f o This paper examines the built-in flexibility properties — as measured by the elasticity of revenue with respect to profits — of the UK corporation tax system. Emphasis is placed on determining some of the major influences on the extent to which total corporation tax revenue changes when profits change over the economic cycle. A microsimulation model, CorpSim, is constructe...

We define and statistically estimate a nonlinear relationship between individual effective income tax rates and economic income for United States tax return data for tax years 1979-89. The relationship, which we call the effective tax function, has three parameters and was theoretically derived from the theory of equal sacrifice by Young (1988, 1990) and more generally by Berliant and Gouveia (...