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The Taxation of Financial Capital under Asymmetric Information and the Tax‐competition Paradox
Author(s) -
Eggert Wolfgang,
Kolmar Martin
Publication year - 2004
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/j.0347-0520.2004.t01-1-00349.x
Subject(s) - economics , tax competition , public good , capital (architecture) , public economics , microeconomics , information asymmetry , competition (biology) , international taxation , monetary economics , tax reform , archaeology , history , ecology , biology
Information sharing between governments is examined in an optimal‐taxation framework. We introduce a taxonomy of alternative systems of international capital‐income taxation and characterize the choice of tax rates and information exchange. The model reproduces the conclusion found in earlier literature that integration of international caopital markets may lead to the under‐provision of publicly provided goods. However, in contrast to previous results in the literature, under‐provision occurs due to inefficiently coordinated expectations. We show that there exists a second equilibrium with an efficient level of public‐good provision as well as complete and voluntary information exchange between national tax authorities.