The political economy of capital market integration and tax competition

Yu-Bong Lai

European Journal of Political Economy, 2010, vol. 26, issue 4, 475-487

Abstract: This paper investigates the effect of capital market integration (CMI) on capital taxes in a political economy framework in which policy is influenced by lobbying of interest groups. CMI increases the efficiency cost of the capital tax, which introduces incentives to reduce the tax rate, but also reduces lobbying by owners of capitalists, which introduces countering incentives to increase the tax rate. CMI can therefore result in a higher capital tax rate. When the market share of each country is small, CMI may increase government supply of public goods and enhance efficiency, which implies that, in the presence of policy endogeneity through lobbying, decentralized policymaking can be more efficient than centralized policymaking.

Keywords: Capital; mobility; Fiscal; federalism; Globalization; Interest; groups; Political; economy; Tax; competition (search for similar items in EconPapers)
Date: 2010
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Citations: View citations in EconPapers (29)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:poleco:v:26:y:2010:i:4:p:475-487

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