Ben Lockwood & Miltiadis Makris
We re-examine, from a political economy perspective, the standard view that higher capital
mobility results in lower capital taxes - a view, in fact, that is not confirmed by the available
empirical evidence. We show that when a small economy is opened to capital mobility, the change
of incidence of a tax on capital - from capital owners to owners of the immobile factor - may interact
in such a way with political decision-making so as to cause a rise in the equilibrium tax. This can
happen whether or not the fixed factor (labour) can be taxed.
Keywords: Tax Competition.
JEL Classification Numbers: H25, H77