Title: Capital income taxation in growing open economies
Abstract: This paper studies how alternative capital mobility assumptions affect the incidence and efficiency of capital income taxation. The study uses a two-country intertemporal equilibrium model in which imperfectly elastic investment captures the notion of imperfectly mobile physical capital. If home goods and foreign goods are perfect substitutes and investment is inelastic, the tax effects in open and closed economies are similar. Only if physical capital is perfectly mobile are capital income taxes completely shifted in small open economies. Only then, and if significant terms of trade effects are absent, do open economy efficiency losses substantially exceed the closed economy losses.