Working Paper: CEPR ID: DP760
Authors: Assaf Razin; Chiwa Yuen
Abstract: We consider the role of capital mobility and international taxation in explaining the observed diversity in long-term income growth rates. Under perfect capital mobility, international differences in taxes will not matter for total growth differentials. Policy differences have a role to play in per capita growth differentials, however, when they lead to a divergence in the after-tax rates of return on capital across countries, as when the residence principle is adopted universally. When this is the case, how tax differences affect the growth rates of population and human capital will depend on the relative preference of the individual household towards these two engines of growth. Optimal tax policies are found to be growth-equalizing with and without policy coordination.
Keywords: economic growth; population growth; human capital accumulation; capital mobility; international taxation
JEL Codes: F21; F43; H21; J13; J22; J24
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| capital mobility (F20) | neutralization of tax impacts (H29) |
| tax differences (H20) | per capita growth differentials (J11) |
| after-tax rates of return on capital (F21) | per capita growth differentials (J11) |
| optimal tax policies (H21) | growth-equalizing (F62) |
| source principle (F35) | equalize after-tax rates of return (H29) |
| residence principle (K25) | growth divergence (O49) |
| tax differences (H20) | growth rates of population (J11) |
| tax differences (H20) | growth rates of human capital (J24) |
| household preferences (D12) | impact of tax differences on growth rates (H29) |