Can Capital Income Taxes Survive? And Should They?

Abstract

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Direct versus Indirect Taxation: Trends, Theory, and Economic Significance

“…A substantial body of research has put forward explanations for this apparent paradox. First, the broadening of the corporate tax base by changes in the laws has played an important role in offsetting the reduction of statutory tax rates Simmons, 2006;Sorensen, 2006;Piotrowska and Vanborren, 2008). Second, income shifting from per sonal to corporate tax bases, or from non-corporate to the corporate sector due to the incentive effect of the low tax rate in the corporate sector has been suggested as another explanation for the paradox (Devereux and Sorensen, 2005;De Mooij and Nicodeme, 2008).…”

Capital Mobility and Capital Tax Competition

“…Moreover, the distinction between statutory/average effective tax rates and effective marginal tax rates, which is not an issue in the basic model, becomes very important in this context, as the level of taxation of economic rents is largely determined by the statutory tax rate. Thus, one would also expect tax competition in statutory tax rates as countries attempt to attract highly mobile capital that generates firm-specific economic rents, tempered by the desire to tax location-specific rents, especially if a significant fraction of such rents accrue to foreigners (Devereux and Hubbard, 2003;Huizinga and Neilsen, 1997;Sorensen, 2006). Note that this reasoning suggests that tax competition will be more severe for small economies with little potential for location-specific economic rents.…”

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