What is the effect of capital market integration on capital taxes when governments can tax according to the residence as well as the source principle?<\/p>\n
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This new paper<\/a> investigates tax competition in a neoclassical growth model where each country may use both residence- and source-based capital taxes. It shows that both types of capital taxes are zero at any interior steady state, just as in a closed economy. For symmetric countries, and even for countries that differ only with respect to size and productivity, proving analytically and verifing numerically that the open-economy policies coincide exactly with the closed-economy policies in all time periods. For countries that are asymmetric in other dimensions, it finds that source-based taxes are used to manipulate the intertemporal terms of trade in the short run and that the fiscal externalities of source-based taxes, vanish once residence-based taxes are allowed.<\/p>\n <\/p>\n “Recent agreements on information sharing between OECD and EU countries make it more feasible to levy capital taxes according to the residence principle.” Makris<\/a> expanded, “In particular, the Common Reporting Standard is now being implemented, allowing for automatic information sharing between governments. This represents a major shift in the enforceability of residence-based capital taxes, making it more important than ever to understand the non-cooperative use of capital taxes by governments who can deploy both residence- and source-based taxes in the presence of capital mobility.”<\/p>\n <\/p>\n The paper will inform the debate in EU and elsewhere on how to reform capital taxation.<\/p>\n <\/p>\n <\/p>\n <\/p>\n","protected":false},"excerpt":{"rendered":"