Vanishing Tax on Capital Income in the Open Economy / Assaf Razin, Efraim Sadka.

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Razin, Assaf

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Material type: Text

TextSeries: Working Paper Series (National Bureau of Economic Research) ; no. w3796.Publication details: Cambridge, Mass. National Bureau of Economic Research 1991.Description: 1 online resource: illustrations (black and white)Subject(s):

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Abstract: The increased integration of the world capital market implies that the supply of capital becomes more elastic, and therefore potentially a less efficient base for taxation. In general, the optimal taxation of capital income is subject to two conflicting forces. On the one hand the return on existing capital is a pure rent which is efficient to fully tax away. On the other hand taxing the returns on investment in new capital would retard growth, thus generating inefficiencies. Capturing these considerations, the paper carries out a simple optimal tax analysis for an open economy, which is fully integrated in the world capital markets. The analysis identifies well defined circumstances in which the capital income tax vanishes.

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Item type	Home library	Collection	Call number	Status	Date due	Barcode	Item holds
Working Paper	Biblioteca Digital	Colección NBER	nber w3796 (Browse shelf(Opens below))	Not For Loan

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August 1991.

The increased integration of the world capital market implies that the supply of capital becomes more elastic, and therefore potentially a less efficient base for taxation. In general, the optimal taxation of capital income is subject to two conflicting forces. On the one hand the return on existing capital is a pure rent which is efficient to fully tax away. On the other hand taxing the returns on investment in new capital would retard growth, thus generating inefficiencies. Capturing these considerations, the paper carries out a simple optimal tax analysis for an open economy, which is fully integrated in the world capital markets. The analysis identifies well defined circumstances in which the capital income tax vanishes.