NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Convergence in Growth Rates: The Role of Capital Mobility and International Taxation

Assaf Razin, Chi-Wa Yuen

NBER Working Paper No. 4214 (Also Reprint No. r1904)
Issued in August 1994
NBER Program(s):   EFG   IFM   PE

We consider the role of capital mobility and international taxation. In explaining the observed diversity in long-term growth rates. Our major finding is that, under capital mobility, international differences in taxes will not matter for total growth differentials. Policy differences have a role to play in per capita growth differentials, however, when they lead to a divergence in the after-tax rates of return on capital across countries, as when the residence principle is adopted universally. When this is the case, how tax differences affect the growth rates of population and human capital will depend on the relative preference of the individual household towards these two engines of growth. Optimal tax policies are found to be growth-equalizing with and without policy coordination.

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Published: Capital Mobility: The Impact on Consumption, Investment and Growth, ed. Leo Leiderman and Assaf Razin, p. 237-257 Cambridge University Press, 1994

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