Journal Article

The case for international tax co‐ordination reconsidered

Peter Birch Sørensen

in Economic Policy

Published on behalf of Center for Economic Studies of the University of Munich

Volume 15, issue 31, pages 430-472
Published in print October 2000 | ISSN: 0266-4658
Published online July 2014 | e-ISSN: 1468-0327 | DOI: https://dx.doi.org/10.1111/1468-0327.00066
The case for international tax co‐ordination reconsidered

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  • Economic Growth and Aggregate Productivity
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SUMMARY

Tax co-ordination Its desirability and redistributional implication

In a world of high capital mobility, governments may be tempted to undercut each other’s capital income taxes to attract capital from abroad. Since such tax competition may have detrimental effects for all countries, European policy makers have debated the introduction of a minimum capital income tax rate within the EU. This paper develops an applied general equilibrium model to estimate the effects of such tax co‐ordination on resource allocation, income distribution and social welfare. The model allows for the concern of policy makers that a rise in capital taxes within the EU may cause a capital flight out of Europe. Capital flight will indeed reduce the welfare gain from tax co‐ordination within Western Europe, but a positive net gain will remain, although it is likely to be well below 1% of GDP. The gain from co‐ordination will be unevenly distributed across European countries, due to differences in economic structures and in the social preference for redistribution. Moreover, even if the median voter’s gain from tax co‐ordination may be small, the gains for the poorer sections of society may be quite large.

— Peter Birch Sørensen

Journal Article.  0 words. 

Subjects: Economic Growth and Aggregate Productivity ; Financial Regulation ; Health, Education, and Welfare ; Labour and Demographic Economics ; Macroeconomics and Monetary Economics ; Public Economics ; Regional Government Analysis

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