DP794 Convergence in Growth Rates: A Quantitative Assessment of the Role of Capital Mobility and International Taxation

Author(s): Assaf Razin, Chi-Wa Yuen
Publication Date: July 1993
Keyword(s): Capital Mobility, Economic Growth, Human Capital Accumulation, International Taxation, Population Growth
JEL(s): F21, F43, H21, J13, J22, J24, O41
Programme Areas: International Macroeconomics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=794

We provide an exploratory quantitive analysis of the role of capital mobility and international taxation in explaining the observed cross-country diversity in the long-run rates of growth of per capita and total incomes as well as the population growth rates. Corroborative evidence is found for the theoretical results on the convergence/divergence in long-term population, per capita and total income growth rates obtained in Razin and Yuen (1992). In particular, the data (and casual observation) show: (1) that population growth and per capita income growth are negatively correlated across countries; (2) that the total income growth rates are less variable than the per capita income growth rates across countries; and (3) that asymmetry in capital income tax rates, coupled with the residence principle of international income taxation, can be an important source of cross-country differences in per capita income growth. Our computer simulations indicate that although the effects of liberalizing capital flows on long-run growth may not be all that sizeable, capital mobility can magnify the growth effects of changes in capital income tax rates as a result of cross-border policy spillovers.