standard model; it allows for taxation of internationally mobile capital. Making this change fundamentally alters the main … lesson from the tax literature that a country which faces a perfectly elastic supply of capital should not use source …-based taxes on capital income. …

internationally mobile capital. Each government may levy a source tax on capital and a lump sum tax on fixed labor. If industry is … concentrated in one of the countries, the analysis finds that the host country will gain from setting its source tax on capital … tax on capital and capture the positive externality that arise in the agglomeration. If industry is not concentrated …