Globalization and Factor Income Taxation
Working Paper 29819
DOI 10.3386/w29819
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This paper builds and analyzes a new global macro-historical database of effective tax rates on labor and capital in 155 countries. Effective capital tax rates fell in developed countries between 1965 and 2018, but rose in developing countries since the mid-1990s. Event-studies and instrumental variable regressions show that a significant share of the rise in developing countries can be explained by trade openness, which increases the share of output produced in large corporations, where effective capital taxation is higher. In contrast to a commonly held view, globalization appears in many countries to have supported governments’ ability to tax capital.