Taxes and the global allocation of capital |
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Authors: | David Backus Espen Henriksen |
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Affiliation: | a Stern School of Business, New York University and NBER, USA b Department of Economics, University of Oslo, Norway |
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Abstract: | Despite enormous growth in international capital flows, capital-output ratios continue to exhibit substantial heterogeneity across countries. We explore the possibility that taxes, particularly corporate taxes, are a significant source of this heterogeneity. The evidence is mixed. Tax rates computed from tax revenue are inversely correlated with capital-output ratios, as we might expect. However, effective tax rates constructed from official tax rates show little relation to capital—or to revenue-based tax measures. The stark difference between these two tax measures remains an open issue. |
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Keywords: | E22 F21 H25 H32 |
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