Optimal international taxation and growth rate convergence: Tax competition vs. coordination

Optimal international taxation and its implications for convergence in long run income growth rates are analyzed in the context of an endogenously gro wing world economy with perfect capital mobility. Under tax competition (i) the residence principle will maximize national welfare; (ii) the optimal l ong run tax rate on capital incomes from various sources will be zero in al l countries; and (iii) long term per capita income growth rates will be equ alized across countries. Under tax coordination, (i) becomes irrelevant whi le (ii) and (iii) will continue to hold. In other words, optimal tax polici es are growth-equalizing with and without international policy coordination .