Working Paper: CEPR ID: DP794
Authors: Assaf Razin; Chiwa Yuen
Abstract: We provide an exploratory quantitive analysis of the role of capital mobility and international taxation in explaining the observed cross-country diversity in the long-run rates of growth of per capita and total incomes as well as the population growth rates. Corroborative evidence is found for the theoretical results on the convergence/divergence in long-term population, per capita and total income growth rates obtained in Razin and Yuen (1992). In particular, the data (and casual observation) show: (1) that population growth and per capita income growth are negatively correlated across countries; (2) that the total income growth rates are less variable than the per capita income growth rates across countries; and (3) that asymmetry in capital income tax rates, coupled with the residence principle of international income taxation, can be an important source of cross-country differences in per capita income growth. Our computer simulations indicate that although the effects of liberalizing capital flows on long-run growth may not be all that sizeable, capital mobility can magnify the growth effects of changes in capital income tax rates as a result of cross-border policy spillovers.
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 |
|---|---|
| population growth (J11) | per capita income growth (O49) |
| capital mobility (F20) | long-term rates of growth of total income (E25) |
| capital mobility (F20) | per capita growth rates (J11) |
| asymmetry in capital income tax rates (H29) | divergent growth rates (O41) |
| tax changes (H26) | growth effects when capital is mobile (F20) |
| capital mobility (F20) | growth effects from tax changes (H32) |