Working Paper: NBER ID: w7115
Authors: Assaf Razin; Chiwa Yuen
Abstract: The problem of economic development,' as Lucas (1988) states it, is the problem of accounting for the observed diversity in levels and rates of growth of per capita income across countries and across time. We study conditions under which capital mobility and labor mobility (two seemingly income-equalizing forces) may interact with cross-country differences in income tax rates and income tax principles (two seemingly income-diverging forces) to generate such diversity. As a corollary, we also examine when countries with different initial endowments may finally converge in their income levels.
Keywords: No keywords provided
JEL Codes: P2; H2; 04
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| capital mobility (F20) | equalization of interest rates across countries (E43) |
| equalization of interest rates across countries (E43) | convergence of growth rates (O47) |
| capital mobility (F20) | convergence of growth rates (O47) |
| labor mobility (J62) | complement to capital mobility (F20) |
| capital mobility + labor mobility (J61) | symmetric effects on income growth (F62) |
| differences in national tax policies (H29) | affect private agents' incentives to invest (D82) |
| private agents' incentives to invest (L85) | influence productivity growth rates (O49) |
| tax-driven diversity in income growth rates (H29) | persist with mobile factors of production (F20) |
| mobile factors of production (F20) | subject to double taxation (H24) |