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Taxing capital and labor when both factors are imperfectly mobile internationally

Author

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  • Hippolyte d'Albis

    (PSE - Paris School of Economics - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris Sciences et Lettres - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement, PJSE - Paris Jourdan Sciences Economiques - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris Sciences et Lettres - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement)

  • Agnès Bénassy-Quéré

    (PSE - Paris School of Economics - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris Sciences et Lettres - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement, PJSE - Paris Jourdan Sciences Economiques - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris Sciences et Lettres - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement)

Abstract

We revisit the standard theoretical model of tax competition to consider imperfect mobility of both capital and labor. We show that the mobility of one factor affects the taxation of both factors and that the "race-to-the-bottom" narrative (with burden shifting) applies essentially to capital-exporting countries. We validate our predictions using a panel of 29 OECD countries over the period of 1997–2017. The quantitative contribution of rising capital mobility to the decline of corporate income tax rates over our sample period is nonetheless less than that of population ageing.

Suggested Citation

  • Hippolyte d'Albis & Agnès Bénassy-Quéré, 2022. "Taxing capital and labor when both factors are imperfectly mobile internationally," PSE-Ecole d'économie de Paris (Postprint) halshs-03672250, HAL.
    • Handle: RePEc:hal:pseptp:halshs-03672250
    DOI: 10.1007/s10797-021-09663-4
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    More about this item

    Keywords

    Tax competition; Globalization; Imperfect factor mobility;
    All these keywords.

    JEL classification:

    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F22 - International Economics - - International Factor Movements and International Business - - - International Migration
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies

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