Primary Research Focuses: Macroeconomics, Public Finance

Secondary Research Focus: Spatial Economics

References: 

• Mikhail Golosov (Committee Chair)
• Esteban Rossi-Hansberg
• Erik Hurst

Job Market Paper: "Capital Tax Competition and Inequality"

[Abstract] How do differences in within-country income and wealth inequality shape governments’ incentives when competing to attract mobile capital? To answer this, I develop a multi-country dynamic incomplete-markets model with an open capital market, non-cooperative tax-setting by governments, and household heterogeneity in both physical and human capital. I derive an analytical welfare decomposition that highlights the efficiency, redistributive, and tax-base erosion trade-offs governments face when setting capital taxes in such a model. The analysis shows that within-country inequalities intensify the short-run downward pressure on capital tax-rates, while long-run savings responses moderate this effect. A quantitative application to the four largest EU economies demonstrates that cross-country asymmetries in aggregate marginal propensities to consume—rooted in differences in within-country income and wealth inequality—imply that neither capital market autarky nor full tax harmonisation would receive unanimous support among governments. This provides an economic explanation for why, despite repeated initiatives and a highly integrated capital market, EU members have failed to agree on coordinated tax policies.