The Impact of Trade and Factor Flows on Domestic Taxation

Abstract

Previous empirical literature has looked at the effect of trade on capital and labor tax_x000D_ rates or the effect of labor flow on the labor tax rate. However, the theoretical literature_x000D_ suggests that both trade and factor flows can affect capital and labor tax rates simultaneously. This paper presents an empirical analysis of how domestic taxation is affected by economic integration. We find no evidence that trade and capital flows alter capital and labor tax rates. Rather, we find that increasing economic integration leads to a lower consumption tax.