Corporate finance, capital market equilibrium, and international tax competition with capital income taxes

We develop a model of capital income tax competition where taxation can discriminate between different kinds of capital income (corporate income, interest income, and dividends) and various rules of international taxation can be applied. The firms' capital structures and the nature of the international capital market equilibrium depend on both the national and the international tax systems. In a fiscal game With revenue maximizing · governments it turns· outthat: (i) Under the source principle, the corporate income tax emerges as the dominant tax form. (ii) Under the residence principle, whole tax blocks are contestable and the Nash eqqilibrium crucially depends on the technologies employed by the firms. (iii) Tax credits will not survive in international tax competition.