Understanding the "Problem of Economic Development": The Role of Factor Mobility and International Taxation

Assaf Razin () and Chi-Wa Yuen
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Assaf Razin: Tel Aviv University
Chi-Wa Yuen: University of Hong Kong

Journal of Applied Economics, 1999, vol. II, pages 131-167

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.

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