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Optimal Cooperative Taxation in the Global Economy

Juan Pablo Nicolini, Varadarajan Chari () and Pedro Teles ()

No 581, Staff Report from Federal Reserve Bank of Minneapolis

Abstract: We use the Ramsey and Mirrlees approaches to study how fiscal and trade policy should be set cooperatively when governments must raise revenues with distorting taxes. Free trade and unrestricted capital mobility are optimal. Efficient outcomes can be implemented with taxes only on final consumption goods and labor income. We study alternative tax systems, showing that uniform taxation of household asset returns, and not taxing corporate income yields efficient outcomes. Border adjustments exempting exports from and including imports in the tax base are desirable. Destination and residence based tax systems are desirable compared to origin and source based systems.

Keywords: Value-added taxes; Production efficiency; Border adjustment; Free trade; Origin- and destination-based taxation; Capital income tax (search for similar items in EconPapers)
JEL-codes: E61 E62 E60 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-acc, nep-dge, nep-int, nep-mac, nep-pbe and nep-pub
Date: 2019-04-18
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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedmsr:581

DOI: 10.21034/sr.581

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