The International Macroeconomics of Taxation and the Case Against European Tax Harmonization

Enrique Mendoza

No 8217, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: The theory of international macroeconomics shows that domestic tax policy in a global economy affects foreign economic conditions via complex, dynamic interactions through relative prices, tax revenues, and wealth distribution. This paper proposes a tractable quantitative framework for assessing tax policies that is consistent with this theory. The significance of the international transmission channels of tax policy is evaluated in the context of a 'workhorse' two-country dynamic general equilibrium model. The model is used to assess the potential effects of the European harmonization of capital income taxes. The results show that this policy, if enacted along the lines followed in harmonizing value-added taxes, yields large capital outflows and a significant erosion of tax revenue for Continental Europe while the opposite effects benefit the United Kingdom. Welfare in the United Kingdom rises as result, while Continental Europe may incur a substantial welfare cost.

JEL-codes: F4 H2 (search for similar items in EconPapers)
Date: 2001-04
New Economics Papers: this item is included in nep-dge
Note: IFM PE
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

Published as Helpman, Elhanan and Efraim Sadka (eds.) Economic Policy in the International Economy: Essays in Honor of Assaf Razin. Cambridge, UK: Cambridge University Press, 2003.

Downloads: (external link)
http://www.nber.org/papers/w8217.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:nbr:nberwo:8217

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w8217

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC.
Bibliographic data for series maintained by ().