The paper lays out a simple model of business income taxation that includes the taxation of asset capital gains. The concepts of tax distorted and undistorted user costs of capital are also defined. The tax distorted user cost differs from its undistorted counterpart by two distortion terms. The first distortion term is associated with the fact that the imputed interest cost of equity capital c...

We show that monetary integration may result in higher capital taxes. The reason is that taxation of mobile capital in a common currency area may give rise to a vertical externality by shrinking the revenues of the anchor central bank from issuing the common currency. As mobility of tax bases, like capital, gives also rise to horizontal tax inefficiencies, the question arises as to whether inst...

This paper surveys the literature on the implications of international capital mobility for national tax policies. Our main issue for consideration in this survey is whether taxation of income, specifically capital income will survive, how border crossing investment is taxed relative to domestic investment and whether welfare gains can be achieved through international tax coordination. We deve...

In a standard model of the intertemporal labour supply/consumption/saving decision, with weak separability between consumption and leisure in each period; identical preferences across households; and a Mirrlees optimal nonlinear tax on labour earnings; the Atkinson-Stiglitz Theorem (AS) implies that there is no case for taxing future consumption and therefore the return to saving. An extension ...

The United States relies for its government revenues more on the taxation of capital relative to the taxation of labor than countries in continental Europe do. In this paper we ask what can account for this. Our approach is to look at Markov perfect equilibria of a two– country growth model where both governments use labor, capital and corporate taxes to finance exogenously given streams of pub...

We analytically and quantitatively examine a prominent justi…cation for capital income taxation: goods preferred by those with high ability ought to be taxed. We study an environment where commodity taxes are allowed to be nonlinear functions of income and consumption and show that a relationship between ability and preferences over goods provides a novel reason for sophisticated distortionary ...

I show in this paper that in an overlapping generations economy with production à la Diamond (1965) in which the agents can only save in terms of physical capital, the laissez-faire competitive equilibrium steady state is not only typically inefficient among all feasible steady states the economy may start from, but it is even ”constrained inefficient”, that is to say, dominated by other steady...

This paper studies the impact of the preferential tax treatment of housing capital in a model economy that includes the main housing tax provisions currently in place in the U.S. and a minimum downpayment requirement upon purchasing non-divisible houses. Distortions arise because the tax code makes the return on housing capital larger than that on business capital. The wedge between the two rat...

The theorem of zero taxation of capital income is reexamined and is shown to hinge critically on the assumptions of a long horizon and perfect markets for the inter-temporal allocation of resources. The theorem does not hold when borrowing constraints prevent individuals from insuring against idiosyncratic shocks and have a precautionary motive for savings. Structural assumptions are made such ...