Assessing the International Spillover Effects of Capital Income Taxation

Abstract: This paper sheds light on the complex international macroeconomic effects initiated by a change in capital income taxation, using a dynamic general equilibrium model of the open U.S. economy. The model considers impacts of unilateral policy changes on the allocation of resources across countries and industries, and over time. It is simulated to assess the private and public consumption effects, whose relative importance depends on whether taxes are source- or residence-based. The model examines the short- and long-term impacts of a unilateral reduction in corporate income taxation and an equivalent reduction in personal income taxation.