NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Taxes and the Global Allocation of Capital

David Backus, Espen Henriksen, Kjetil Storesletten

NBER Working Paper No. 13624*
Issued in November 2007
NBER Program(s):   IFM    PE

Despite enormous growth in international capital flows, capital-output ratios continue to exhibit substantial heterogeneity across countries. We explore the possibility that taxes, particularly corporate taxes, are a significant source of this heterogeneity. The evidence is mixed. Tax rates computed from tax revenue are inversely correlated with capital-output ratios, as we might expect. However, effective tax rates constructed from official tax rates show little relation to capital -- or to revenue-based tax measures. The stark difference between these two tax measures remains an open issue.

*Published: Backus, David & Henriksen, Espen & Storesletten, Kjetil, 2008. "Taxes and the global allocation of capital," Journal of Monetary Economics, Elsevier, vol. 55(1), pages 48-61, January.

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