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4 years ago

Capital tax rates could rise with global mobility, defying economic consensus.

2014 Meeting Papers
Dynamic Capital Tax Competition in a Two-country Model
Paul Klein

Paper Summary

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This paper looks at how taxes on capital income can change when two countries compete for investment. The governments in each country try to set the best tax rates, taking into account what the other country is doing. The researchers found that because of this competition, capital income taxes can start high but eventually drop to zero in the long run. This drop happens more slowly when countries can easily move capital between them. Surprisingly, taxes can end up higher with capital mobility than without it.