Factor income taxation and growth with increasing integration of world capital markets

Wai-Hong Ho () and C. C. Yang

MPRA Paper from University Library of Munich, Germany

Abstract: In a closed economy, the infinite-horizon and the overlapping generations (OG) model prescribe diametrically opposite policies on factor taxation: the former argues that the growth-maximizing capital income tax rate should be set to zero, whereas the latter argues that it should be set as high as possible. This note investigates the issue by taking into account global capital market integration. We show that the long-run growth-maximizing capital income tax rate in a small open OG economy is decreasing as the economy's capital market is increasingly integrated with the rest of the world, and will be equal to zero as prescribed in the infinite-horizon model once the degree of integration becomes sufficiently high.

Keywords: Capital mobility; Endogenous growth; Factor income taxation; Overlapping generations; Small open economy (search for similar items in EconPapers)
JEL-codes: F15 H21 O41 (search for similar items in EconPapers)
Date: 2010-02
New Economics Papers: this item is included in nep-dge
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Related works:
Journal Article: Factor income taxation and growth with increasing integration of world capital markets (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:21565

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