Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/101710 
Year of Publication: 
1995
Series/Report no.: 
Diskussionsbeiträge - Serie II No. 275
Publisher: 
Universität Konstanz, Sonderforschungsbereich 178 - Internationalisierung der Wirtschaft, Konstanz
Abstract: 
A two-sector trade model with perfect international capital mobility and endogenous supply of specific factors is used to analyze the relation between selective taxes on production (origin-based commodity taxes) and source-based taxes on capital income. A small open economy will set both of these taxes equal to zero when it is able to tax all specific factors optimally. In the absence of a domestic motive for capital taxation a switch towards origin-based commodity taxes leads to a negative source tax on capital (i.e., a subsidy). However, when one of the specific factors is in fixed supply and cannot be taxed by a separate instrument, then the optimal capital tax rate is positive and may be further increased by the introduction of a selective production tax.
Document Type: 
Working Paper

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