Asymmetric capital tax competition and choice of tax rate

Holger Kächelein ()

International Tax and Public Finance, 2014, vol. 21, issue 1, 50-65

Abstract: This article provides an alternative mechanism that explains differences in capital tax rates, which applies to small jurisdictions. In the framework of standard capital tax competition models, regions have to be large, in the sense of having market power, otherwise they will tax capital, a mobile factor, at the same rate. In this paper, we consider a second mobile factor, labor, which is mobile only within metropolitan areas. We will show that this spatially limited mobile factor may explain the capital tax rate differences levied on the global mobile factor as long as no source-based wage tax is available. In addition to the theoretical treatment, numerical simulations also confirm this result and show a significant tax differential. Copyright Springer Science+Business Media New York 2014

Keywords: Capital tax competition; Asymmetric regions; Tax rate; Commuting; H71; H73 (search for similar items in EconPapers)
Date: 2014
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Persistent link: https://EconPapers.repec.org/RePEc:kap:itaxpf:v:21:y:2014:i:1:p:50-65

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DOI: 10.1007/s10797-012-9257-5

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