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Factor Taxation, Income Distribution and Capital Market Integration
Author(s) -
Haufler Andreas
Publication year - 1997
Publication title -
scandinavian journal of economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.725
H-Index - 64
eISSN - 1467-9442
pISSN - 0347-0520
DOI - 10.1111/1467-9442.00072
Subject(s) - economics , capital (architecture) , capital intensity , physical capital , distribution (mathematics) , fixed capital , tax rate , cost of capital , capital deepening , labour economics , monetary economics , financial capital , macroeconomics , capital formation , market economy , human capital , mathematical analysis , mathematics , archaeology , history , incentive
This paper addresses the optimal mix of capital and wage taxation when policymakers maximize the political support of workers and capitalists, subject to a fixed revenue requirement. Capital market integration increases the efficiency costs of a tax on capital but simultaneously changes the political equilibrium through its effect on the distribution of factor incomes. These distributional effects are directly opposed in the capital importing and the capital exporting region. While the capital tax rate will always be lowered in the capital importing region, the tax rate in the exporting country will rise when political resistance to market‐induced changes in the distribution of income is sufficiently high.