Tax Competition, Capital Mobility, and Public Good Provision Within a Trading Block

The authors examine a two–country general–equilibrium model of a two–country trading block where governments through tax policies attract mobile capital and provide an imported public consumption good. Within this framework the authors examine, among other things, how preferences over the public good and the size (population) of a country affect the Nash or cooperative equilibrium values of income tax rates in the two countries. The analysis identifies sufficient conditions under which (i) the Nash/cooperative equilibrium income tax rates are strategic substitutes or complements, and (ii) the Nash equilibrium income tax rates may be greater than the cooperative rates.     

创业型企业与风险投资合作机制的博弈分析

创业型企业与风险投资合作机制是围绕资本供求关系进行的,体现为双方在不同的阶段如何选择策略的博弈。基于博弈论的分析方法,构建不同阶段的博弈模型,并求解博弈双方不同策略下的纳什均衡。博弈分析的结果表明：无论创业型企业或风险投资的任何一个阶段,合作是双方最好的策略选择。     

Capital formation and demographics

Low rates of saving and capital formation have been a disturbing and persistent characteristic of the United States' economy. The leading explanation of this phenomenon is based on the effects of inflation under our nonindexed tax system—a financial explanation. This paper explores, with a simple life-cycle savings model with irreversible capital, whether a real explanation exists. The analysis indicates that plausible prospective declines in the growth rate of the working-age population can lower the equilibrium interest rate and the rates of saving and capital formation in spite of a relatively high marginal product of capital. The policy implications of the real explanation are also discussed.     

Capital income taxation,tax criteria,and intergenerational welfare

In a two-period overlapping-generations model, residence criteria are shown to be optimal with lump-sum transfers to the younger generation in a dynamically efficient open economy even if all wage income, corresponding to rent income under exogenous labor supply, is not taxed away. When tax revenues are also distributed to the older generation — which indeed may be desirable for short-term intergenerational welfare distribution reasons — a weighted average rule is derived for optimal international taxation. The taxation of domestic savings income follows the inverse elasticity rule in respect to savings and, surprisingly, higher investment elasticity increases the tax level. Finally, for a small open economy and for large identical economies, tax competition with a mixed scheme of residence-based taxes and source-based subsidies yields the same tax policy as tax cooperation with no restrictions on the domestic and international capital income tax instruments.     

Capital tax,minimum wage,and labor market outcomes

Often an increase in the minimum wage is accompanied by a reduction in the capital tax. This paper analyzes the effects of interactions between the minimum wage and the capital tax in the general equilibrium framework. The analysis is conducted in an inter-temporal search model in which firms post wages. A (binding) minimum wage provides a lower support for the distribution of wages. The paper finds that the interaction of these two policy instruments significantly modify labor market outcomes and welfare cost. In the presence of a binding minimum wage, a decrease in the capital tax leads to an increase in wage dispersion. In contrast, when it is not binding, a lower capital tax may reduce the dispersion in wages. A binding minimum wage magnifies the positive effects of a lower capital tax on labor supply, employment, and output. It also enhances the welfare cost of capital tax. A policy change which involves an increase in the minimum wage and a fall in the capital tax such that employment level remains constant increases welfare and output.     

A Model of Tradeable Capital Tax Permits

Standard models of horizontal capital tax competition predict that, in a Nash equilibrium, states set tax rates inefficiently due to externalities—capital inflow to one state corresponds to capital outflow for another state. Researchers often suggest that the federal government impose Pigouvian taxes to correct for these effects and achieve efficiency. We propose an alternative incentive‐based regulation: tradeable capital tax permits. Under this system, the federal government would require a state to hold a permit if it wanted to reduce its capital income tax rate from some predefined benchmark. These permits would be tradeable across states. We show that, if the federal government sets the correct number of total permits, then social efficiency is achieved. We discuss the advantages of this system relative to the canonical suggestion of Pigouvian taxes.     

Tax Policy and Human Capital Formation with Public Investment in Education

This paper studies the effects of distortionary taxes and public investment in an endogenous growth OLG model with knowledge transmission. Fiscal policy affects growth in two respects: first, work time reacts to variations of prospective tax rates and modifies knowledge formation; second, public spending enhances labour efficiency but also stimulates physical capital through increased savings. It is shown that Ramsey-optimal policies reduce savings due to high tax rates on young generations, and are not necessarily growth-improving with respect to a pure private system. Non-Ramsey policies that shift the burden on adults are always growth-improving due to crowding-in effects: the welfare of all generations is unambiguously higher with respect to a private system, and there generally exists a continuum of non-optimal tax rates under which long-run growth and welfare are higher than with the Ramsey-optimal policy.     

The Credit Channel of Capital Tax Policy

A neoclassical growth model is augmented by a corporate sector, financial intermediation, and a set of tax rates. In this setting, capital structure is determined by the interplay between a tax advantage of debt finance and costly state verification entailed by asymmetric information. Effects of capital tax reforms are investigated with a special focus on this micro‐founded credit channel of tax policy. The theoretical part of the paper establishes a new, institution‐based view on the motivation of debt finance in general equilibrium and derives financial and real effects of private and corporate income tax policies. Using a calibration with U.S. data, the applied part demonstrates that tax cuts cause significant adjustments of capital structure. Nevertheless, it turns out that the credit channel generates relatively small effects of tax reforms on consumption, investment, and growth.     

Tax Evasion and the Time Consistency of the Government's Income Tax Policy

It is shown that it is not necessarily optimal for the government to tax capital income at a high rate even when capital is in fixed supply because the supply of capital for tax purposes may be elastic if capital income tax evasion occurs. An example is given where the wage tax rate is positive and greater than the interest income tax rate even though capital is in fixed supply. Conditions are also derived under which the capital income tax rate is lower in the closed-loop policy game, where capital is fixed, than in the open-loop game, where it is not.
JEL Classification Numbers: E61, H26.     

Quantitative Import Restrictions and Optimal Capital Taxes Under a System of Tax Credits

This paper examines the optimal capital tax policy under quantitative import constraints, and international capital tax credits. For a small capital-importing country, the optimal capital tax equals the foreign tax under a quota, and equals or exceeds the foreign tax under a VER. For a small capital-exporting country, the optimal policy towards capital is a zero tax under a quota, and a tax or a subsidy under a VER. Also examined are the welfare effects of capital taxes and trade liberalization, and the joint setting of the two policies, when both instruments are available to the government.     

Venture Capital Backed Growth

The paper proposes a simple equilibrium model of venture capital, start-up entrepreneurship and innovation. Venture capitalists not only finance but also advise start-up entrepreneurs and thereby add value to new firms. The paper shows how a productive and active venture capital industry boosts innovation based growth. It also demonstrates the potential of tax policy to promote innovation and growth by strengthening incentives for more intensive venture capital support.     

Imperfect Capital Mobility and Local Government Behaviour in a Two‐Period Economy

One clear result in the tax competition literature is that, when head taxes on immobile residents are available, the optimal capital tax rate for local government is zero. However, zero tax rate, when resident taxes are available, is incompatible with the phenomenon actually observed. In most countries, local governments use capital taxes as policy variables for choosing a nonzero tax rate. This paper presents a model of a two‐period economy with imperfect mobile capital to explain the behaviour of local government providing capital subsidies on capital. It further examines an equilibrium tax rate where local government’s objectives include Niskanen‐type revenue‐maximizing.     

Taxation, Human Capital Accumulation and Economic Growth

Previous studies have shown that tax rates and the growth rate of output are negatively related under the assumption that government wastes tax revenues. This paper shows that, if tax revenues are used for human capital accumulation, tax rates and the growth rate can be positively related. An increase in the human capital tax rate will increase (decrease) the growth rate when the initial tax rate is small (large). An increase in the physical capital tax rate will increase the growth rate when savings are completely interest-inelastic. The effects of income taxes and lump-sum taxes on growth are also analysed.
JEL Classification Numbers: E6, H2, O4.     

Capital accumulation,income distribution and endogenous fertility in an overlapping generations general equilibrium model

A study is conducted in attempts to increase the understanding of the links between macroeconomic effects and causes of population growth in formulating policy. An overlapping generations general equilibrium model is employed aggregating household decisions about fertility, savings, and investment in the human capital of children with the objective of studying intertemporal relationships among population growth, income distribution, inter-generation social mobility, skill composition of the labor force, and household income. As a result of endogenous fertility, the equilibrium path attains steady state from the second generation. Income tax transfer, child taxation, and social security taxation policies are also examined in the paper. A structural explanation is given for the inverse household income-child quantity and negative child quality-quantity relationships seen in developing countries. In a Cobb-Douglas economy, these relationships hold in the short-run, potentially working over the long-run in other economies. Overall, the model shows that group interests may hinder emergence of perfect capital markets with private initiatives. Where developing countries are concerned, these results have strong implications for population policy. A policy mix of building good quality schools, or subsidizing rural education, introducing a formal social security program, and providing high-yield, risk-free investments, banking, and insurance services to the poor is recommended.     

SUBSIDIES AS OPTIMAL FISCAL STIMULI

Theoretical macroeconomic models typically take fiscal policy to mean tax‐and‐spend by a ‘benevolent government’ that exploits potential aggregate demand externalities inherent in the imperfectly competitive nature of goods markets. Whilst shown to raise aggregate output and employment, these policies crowd‐out private consumption and typically reduce welfare. On account of their widespread use to stimulate economic activity, we consider the use of ‘tax‐and‐subsidize’ instead of ‘tax‐and‐spend’ policies. Within a static general equilibrium macro‐model with imperfectly competitive goods markets, we examine the effects of wage and output subsidies and show that, for a small open economy, positive tax and subsidy rates exist which maximize welfare, rendering no intervention suboptimal. We also show that, within a two‐country setting, a Nash non‐cooperative symmetric equilibrium with positive tax and subsidy rates exists, and that cooperation between governments in setting these rates is more expansionary and leads to an improvement upon the non‐cooperative solution.     

Capital income taxation and perfect foresight

This paper develops a perfect foresight model of capital income taxation in a representative household neoclassical one-sector framework. The household sector is based on intertemporal utility maximization. The main result is the equivalence of a perfect foresight solution and an artificial central planning solution; if there is no tax, this is the equivalence of a market equilibrium and social optinum. The equivalence result is used to deduce the implications of a partial tax reform policy. It is shown that a partial reform increases capital at each time following the initial period of the program.     

Income Taxes,Subsidies to Education,and Investments in Human Capital

We study a two‐sector economy with investments in human and physical capital and imperfect labor markets. Investments are irreversible and noncontractible, due to random matching between firms and workers. Income is allocated according to the Nash bargaining mechanism. At equilibrium, given the distribution of the agents across sectors, there is underinvestment in both human and physical capital, due to the holdup problem generated by bargaining and noncontractibility. Self‐selection of the agents into the two sectors typically induces too many workers to invest in high skills. Compared to the constrained efficient allocation, at each equilibrium, there are too many people investing too little effort in the high‐skill sector. We also study the effects of several tax policies on total expected surplus.     

Social Comparisons and Optimal Taxation in a Small Open Economy

In this paper, we analyze how international capital mobility affects the optimal labor and capital income tax policy in a small open economy when consumers care about relative consumption. The main results crucially depend on whether the government can tax returns on savings abroad. If the government can use flexible residence‐based capital income taxes, then the optimal policy rules from a closed economy largely carry over to the case of a small open economy. If it cannot, then capital income taxes become completely ineffective. The labor income taxes must then indirectly also reflect the corrective purpose that the absent capital income tax would have had.     

A Public Choice Approach to Strategic and Nonstrategic Environmental Policy

In this paper we take a public choice perspective on strategic environmental policy and international environmental agreements. We examine cooperative and noncooperative environmental policies under governments that are either welfare maximizers (“good dictators”) or tax revenue maximizers (“Leviathans”). We show that Leviathans can perform better in terms of welfare and that good dictators can set higher taxes. We then analyze international environmental agreements and show that the breakdown of environmental cooperation can indeed lead to a welfare gain for all signatory countries. Considering a delegation game between governments, we find that a Pareto‐superior Leviathan outcome can be the unique Nash equilibrium.     

The taxation of capital returns in overlapping generations models

This paper shows that in the Diamond (1965) overlapping generations economy with production and capital savings, there is a period-by-period balanced fiscal policy supporting a steady state allocation that Pareto-improves upon the laissez-faire competitive equilibrium steady state (whether dynamically inefficient or efficient) without resorting to intergenerational transfers. The policy consists of taxing linearly (or subsidizing, in the dynamically efficient case) the returns to capital, while balancing the budget period by period through a lump-sum transfer (or tax, respectively) in second period. This intervention grants every generation the highest steady state utility attainable through markets (i.e. remunerating factors by their marginal productivities and without transfers) which under laissez-faire is not a competitive equilibrium outcome. A transition from the competitive equilibrium steady state to this other steady state is also Pareto-improving when the former is dynamically inefficient. The result disentangles from redistributive considerations the impact of the taxation of capital returns on steady state welfare, and thus provides a rationale for the taxation of capital returns that is based on efficiency considerations and not on redistributive goals.