Institutional quality and capital taxation

Luis Araujo () and Paulo Arvate

International Tax and Public Finance, 2016, vol. 23, issue 1, 25-47

Abstract: We describe the preferred taxation regime in a small economy with uncertain institutional quality. We obtain that a preferential taxation regime in which taxes can be matched to the mobility of the tax base may be worse off than a non-preferential taxation regime in which taxes are constant across bases with distinct mobility. Since the small economy takes foreign taxes as given, our result is not driven by a downward pressure on revenues caused by unconstrained tax competition. It is instead related to the ability of a non-preferential taxation regime to credibly convey information about the institutional quality of the small economy. We present some empirical evidence which corroborates our results. Copyright Springer Science+Business Media New York 2016

Keywords: Non-preferential taxation; Asymmetric information; Poor institutional quality; H20 (search for similar items in EconPapers)
Date: 2016
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Persistent link: https://EconPapers.repec.org/RePEc:kap:itaxpf:v:23:y:2016:i:1:p:25-47

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DOI: 10.1007/s10797-014-9346-8

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