Taxation under Economic Intergration

Working Papers 127 Piekkola Hannu

The paper introduces international tax rules taking the mobile capital as the primary target of international tax policy. The famous Diamond-Mirrlees (1971) producting efficiency theorem holds under labor migration (and no unemployment) even though the tax on domestic fixed factor is arbitrary. Otherwise, source-based taxation works as a surrogate for exogenous wage taxes (rather than for taxes on domestic fixed factor) and international taxation is sensitive to country differences.