FISCAL-POLICY IN A SIMPLE 2-COUNTRY DYNAMIC-MODEL

This paper analyzes the national and international effects of labor an d capital income taxes in a two-country infinite-horizon perfect-fores ight neoclassical model with endogenous labor supply and capital accum ulation. Two polar regimes of capital income taxation are considered: the source-based and the residence-based. The qualitative effects of l abor income taxes are shown to be independent of the taxation regime, whereas the effects of capital income taxes are not.