Optimal Fiscal Policy in an Open Economy with Capital Income Shifting and Consumer Cross-border Purchases

• Authors: Kudła Janusz , Kocia Agata , Kopczewska Katarzyna , Kruszewski Robert , Walczyk Konrad
• Languages of publication: EN

Abstracts

EN

The paper presents a fiscal policy model integrating tax avoidance, the complexity of tax systems and the fiscal solvency hypothesis within the traditional framework of tax competition. Furthermore, we take into account: taxation of consumption, possibility of capital income shifting and foreign goods purchases (untaxed in the destination country). We conclude that if fiscal policy is by no means unfettered the equilibrium can be allocation efficient, provided that the marginal rate of substitution between private and public goods is one. The changes in public debt affect tax rates in equilibrium differently: positively for the consumption tax rate and negatively for the labor tax rate. The change of the capital tax depends on the level of economic internalization. This approach is especially useful during a solvency crisis and can be applied to predict tax rates’ adjustment when the bonds issuance decreases or public debt accelerates.

Keywords

EN

capital income tax; consumption tax; fiscal policy; public debttax competition

• Publisher: Instytut Badań Gospodarczych
• Journal: Equilibrium. Quarterly Journal of Economics and Economic Policy
• Year: 2015
• Volume: 10
• Issue: 2
• Pages: 9-30

Contributors

author

Kudła Janusz

author

Kocia Agata

author

Kopczewska Katarzyna

author

Kruszewski Robert

author

Walczyk Konrad

Identifiers

DOI

10.12775/EQUIL.2015.011