THE SCOPE FOR TAXATION AND PUBLIC-EXPENDITURE IN AN OPEN-ECONOMY

In this survey of some central issues of tax and expenditure policy in an open economy, we consider the implications for policy of free - al though not necessarily perfect - international mobility of commodities , capital, and labour. We examine the issues both from a positive and a normative point of view, trying to identify both the incidence and w elfare effects of international mobility. One general conclusion is th at tax distortions may increase in magnitude in comparison with a clos ed economy, but they may also increase in kind, as when otherwise neut ral taxes become distortionary because of factor mobility.