Second-Best Optimal Taxation of Oil and Capital in a Small Open Economy

Alberto Petrucci ()

No 2010.20, Working Papers from Fondazione Eni Enrico Mattei

Abstract: This paper analyzes the efficient taxation of oil and capital income in an oil-dependent infinite-lived economy facing perfect capital mobility. Two cases are examined: one with product market imperfections and free tax choice, one with perfect competition and tax restrictions. The optimal tax rates on oil and capital strictly depend on the international tax system implemented; however, they are also affected by the degree of market power and the extent to which monopoly profits are taxed, the type of tax restrictions and the use of oil (as an input or a consumer good). Under the residence-based system, capital income should always be exempted from taxation, while the optimal tax on productive oil may differ from zero. Under the source-based system, second-best taxes on capital and oil are non-zero.

Keywords: Optimal Factor Taxation; Oil; Capital Income; Residence-based System; Source-Based System (search for similar items in EconPapers)
JEL-codes: E62 H21 Q43 Q48 (search for similar items in EconPapers)
Date: 2010-02
New Economics Papers: this item is included in nep-acc, nep-ene and nep-pub
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:fem:femwpa:2010.20

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