The Corporate Income Tax in an Intertemporal Equilibrium Model with Imperfectly Mobil Capitla

Lans Bovenberg

International Economic Review, 1988, vol. 29, issue 2, 321-40

Abstract: This paper examines how alternative capital mobility assumptions affect the inci dence and efficiency of corporate income taxation. It uses a two-sect or intertemporal equilibrium model in which imperfectly elastic inves tment captures the notion of imperfectly mobile capital. If investmen t is infinitely elastic, which implies perfectly mobile capital, a lo wer corporate income tax yields substantial efficiency gains and bene fits all agents. If investment is less elastic, however, the economy- wide efficiency gains are smaller and labor suffers welfare losses. I f the goods supplied by the two sectors are close substitutes, noncor porate capital loses also and only corporate capital benefits. Copyright 1988 by Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association.

Date: 1988
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