Capital Income Taxation and Economic Growth in Open Economies

Author/Editor:

Geremia Palomba

Publication Date:

May 1, 2004

Electronic Access:

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Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary:

Do reductions in capital income taxes attract foreign capital and, at the same time, foster economic growth? This paper examines the effect of capital income taxation on the international allocation of capital and on economic growth in a two-country overlapping generations model with endogenous growth and internationally mobile capital. It shows that domestic capital taxes affect both the international allocation of capital and the rate of economic growth and that these two effects are not necessarily the same. A country can increase its share of the existing world capital by changing its taxes but, depending on the elasticity of saving to after-tax returns, this may reduce the rate of capital accumulation and economic growth.

Series:

Working Paper No. 04/91

Subject:

English

Publication Date:

May 1, 2004

ISBN/ISSN:

9781451851540/1018-5941

Stock No:

WPIEA0912004

Format:

Paper

Pages:

28

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