Optimal factor and commodity taxation in a small open economy

Andreas Haufler

No 275, Discussion Papers, Series II from University of Konstanz, Collaborative Research Centre (SFB) 178 "Internationalization of the Economy"

Abstract: A two-sector trade model with perfect international capital mobility and endogenous supply of specific factors is used to analyze the relation between selective taxes on production (origin-based commodity taxes) and source-based taxes on capital income. A small open economy will set both of these taxes equal to zero when it is able to tax all specific factors optimally. In the absence of a domestic motive for capital taxation a switch towards origin-based commodity taxes leads to a negative source tax on capital (i.e., a subsidy). However, when one of the specific factors is in fixed supply and cannot be taxed by a separate instrument, then the optimal capital tax rate is positive and may be further increased by the introduction of a selective production tax.

Date: 1995
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Related works:
Journal Article: Optimal factor and commodity taxation in a small open economy (1996)
Journal Article: Optimal factor and commodity taxation in a small open economy (1996)
Working Paper: Optimal Factor and Commodity Taxation in a Small Open Economy (1996)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:kondp2:275

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