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Tax Competition and the Distribution of Income

Stefan Traub and Hongyan Yang

Scandinavian Journal of Economics, 2020, vol. 122, issue 1, 109-131

Abstract: In this paper, we provide a two‐country, two‐class model of asymmetric capital tax competition. We show formally that poor people living in small countries can benefit from capital tax competition and therefore they are in favor of it. In order to benefit from capital inflow from larger countries, poor people in smaller countries accept less within‐country income redistribution. As a consequence, between‐country income inequality is increased by tax competition.

Date: 2020
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