We construct a general equilibrium model of a two-country trading block where governments through tax policies attract mobile capital, and provide an imported public consumption good. At Nash equilibrium, when the public good is under-provided, (i) a country with a large GDP, has a large Nash...

The paper analyzes the effects of a source-based capital income tax on production and market structures, trade and capital flows as well as national and global welfare. The analysis is carried by means of a general equilibrium model of trade which incorporates international capital flows as well...