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Taxation and Globalization

Publication Year 
2010
JEL Code 
D63 - Equity, Justice, Inequality, and Other Normative Criteria and Measurement
E62 - Fiscal Policy; Public Expenditures, Investment, and Finance; Taxation
F42 - International Policy Coordination and Transmission
Abstract 
The decline of capital taxation is associated with efficiency gains.We show that, when agents are heterogeneous, equity concern can change the policy recommendation driven by efficiency. Given the empirical evidence on the roots of heterogeneity inside each country, either in developing or developed economies, the elimination of capital taxation would lead always to a decline in inequality and to an increase of welfare of the poorest, in a small open economy acting unilaterally. On the contrary for a group of open economies following the same policy, the opposite occurs: with the elimination of capital taxation inequality worsens and it hurts the poorest of each country. Therefore globalization can be important to support a positive tax on capital.
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