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The Dilemma of International Capital Tax Competition in the Presence of Public Capital and Endogenous Growth

Peter Stauvermann () and Ronald Kumar ()
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Peter Stauvermann: Changwon National University, Department of Global Business & Economics

Annals of Economics and Finance, 2015, vol. 16, issue 2, 255-272

Abstract: Using an OLG-model with endogenous growth and public capital we show, that an international capital tax competition leads to inefficiently low tax rates, and as a consequence to lower welfare levels and growth rates. Each national government has an incentive to reduce the capital income tax rates in its effort to ensure that this policy measure increases the domestic private capital stock, domestic income and domestic economic growth. This effort is justified as long as only one country applies this policy. However, if all countries follow this path then all of them will be made worse off in the long run.

Keywords: Tax competition; Public capital; Economic growth; Overlapping generations (search for similar items in EconPapers)
JEL-codes: H21 H41 H54 O41 (search for similar items in EconPapers)
Date: 2015
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Working Paper: The dilemma of international capital tax competition in the presence of public capital and endogenous growth (2014) Downloads
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