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Capital tax competition and social security

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  • Raymond Batina

Abstract

The classic capital tax policy externality is studied in the presence of a social security program where both the benefits and taxes depend on wages in an overlapping generations economy with many countries and mobile capital. We study the response and welfare implications of a coordinated capital tax rate increase across countries competing for the mobile tax base on the initial generations, the transition, and the steady state. The tax increase is initially completely capitalized, but some of the burden is shifted to labor on the transition path and in the steady state. Several new welfare effects are uncovered including an effect involving the parameters of the social security program. Sufficient conditions are provided so that all current and future generations are better off from the reform. However, social security may reduce the gain to capital tax reform. Copyright Springer Science+Business Media, LLC 2012

Suggested Citation

  • Raymond Batina, 2012. "Capital tax competition and social security," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 19(6), pages 819-843, December.
    • Handle: RePEc:kap:itaxpf:v:19:y:2012:i:6:p:819-843
    DOI: 10.1007/s10797-011-9209-5
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    More about this item

    Keywords

    Tax competition; Social security; Overlapping generations; Savers and myopes; H2; H5; H7; R1; R5;
    All these keywords.

    JEL classification:

    • H2 - Public Economics - - Taxation, Subsidies, and Revenue
    • H5 - Public Economics - - National Government Expenditures and Related Policies
    • H7 - Public Economics - - State and Local Government; Intergovernmental Relations
    • R1 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics
    • R5 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Regional Government Analysis

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