This paper compares source and residence-based capital income taxes in the steady state of a dynamic two-country model. Contrary to the results in the literature, it shows that the source-based tax performs better than the residence-based tax does in the sense that the welfare costs of tax competition are smaller. This is due to the facts that the steady-state conditions determine the tax bases and that the residence-based tax distort savings more than the source-based tax does.
- Capital income taxes
- Capital mobility
- Exogenous growth
- Tax competition
Lejour, A. M., & Verbon, H. A. A. (1998). Source-based versus residence-based capital income taxes in a dynamic model. European Journal of Political Economy, 14(3), 529-541. https://doi.org/10.1016/S0176-2680(98)00020-2