Efficiency of capital taxation in an open economy: tax competition versus tax exportation

Abstract

Tax competition and tax exportation have contrary implications for the efficiency of capital taxation. We provide a simple condition for the dominance of either force, which depends on the mobility of foreign investment. We use this condition to evaluate the relative importance of both forces in the US and in the EU.

Public Input Provision, Tax Base Mobility, and External Ownership

“…Consequently, tax base mobility creates an incentive for underprovision, whereas external ownership creates an incentive for overprovision. Lee (2003a;b), Braid (2005), Wagner and Eijffinger (2008), and Kächelein (2012) investigate the relative magnitude of these distortionary impacts, which determines whether decentralized policy-making leads to the underprovision of public goods.…”