International tax competition with rising intangible capital and financial globalization

Vincenzo Quadrini and Jose-Victor Rios-Rull
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Vincenzo Quadrini: University of Southern California CEPR and NBER
Jose-Victor Rios-Rull: University of Pennsylvania, CAERP, UCL, CEPR and NBER

PIER Working Paper Archive from Penn Institute for Economic Research, Department of Economics, University of Pennsylvania

Abstract: The last three decades have been characterized by two important trends: (a) the rise in intangible capital as a share of total capital, and (b) the increase in crosscountry ownership of assets (financial globalization). We study the importance of these two trends for international tax competition in a two-country model where governments choose profit and income tax rates without commitment to future policies and without international coordination. The quantitative exercise shows that the higher share of intangible capital led to lower profit tax rates while the increased cross-country ownership of assets led to higher taxation of profits. The contrasting effects resulted in a small change in profit rate of 1.3% and a small welfare gain of 0.1%.

Pages: 39 pages
Date: 2023-06-19
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