This article compares an ACE system with a CBIT system in an open economy. Using a realoption approach we show that, if a firm can decide when to invest, a tradeoff is found. According to traditional wisdom, a high-income firm investing in an ACE system faces a heavier tax burden at each...

This paper analyses the switch to an ACE or to a CBIT type of tax system starting from the present German tax system. We show that in case an ACE type of reform is financed by an increase in the VAT and not in the profit tax, it might be preferred to a CBIT even in the context of an open...

In a two-country economy we analyze how tax competition differs from the standard all-Nashian tax competition, if one or both countries are Kantians in Roemer’s sense. Kantians are shown to choose a higher tax rate than Nashians for any given tax rate of the other country, which indicates that...

We study aggregate, distributional, and welfare effects of a permanent reduction in the capital tax rate in a dynamic equilibrium model with capital-skill complementarity. Such a tax reform leads to expansionary long-run aggregate effects, but is coupled with an increase in the skill premium....

We analyze the implications of the decline in labor’s share in national income for optimal Ramsey taxation. It is optimal to accompany the decline in labor share by raising capital taxes only if the labor share is falling because of a decline in competition or other mechanisms that raise the...

There is increasing empirical evidence that people systematically differ in their rates of return on capital. We derive optimal non-linear taxes on labor and capital income in the presence of such return heterogeneity. We allow for two distinct reasons why returns are heterogeneous: because...

This paper shows that capital-skill complementarity provides a quantitatively significant rationale to tax capital for redistributive governments. The optimal capital income tax rate is 60%, which is significantly higher than the optimal rate of 48% in an identically calibrated model without...