TAXATION, GROWTH AND COMPETITIVENESS IN A 2-COUNTRY MODEL

A two country model of growth is developed in which cross country diff erences in growth may arise from differing internal rates of taxation on the earnings of physical capital under a residence based tax rule. Under the source rule, after-tax rates of return and rates of growth o f income and consumption are equal world-wide. The spillover effects o f foreign taxation on the domestic growth rate and the competitive eff ects of tax policy are also examined. Both of these, in part, depend u pon the tax rule which is in use.