ABSTRACT
Economists can offer very substantial contribution in the area of taxation of capital income. This chapter examines the theoretical issues that characterize the problem of reforming capital income taxes in an open economy by collecting and discussing previous results of mine, together with other current developments in the literature. It highlights the important questions that are yet unanswered in the literature. The chapter describes the distortions on savings and investment induced by capital income taxes in the presence of international capital mobility. It explores the complications arising from the lack of integration of individual income and corporate income for tax purposes, with special reference to the laws enforced in Europe. In the standard welfare analyses of capital income taxes in a closed economy, investment distortions equal savings distortions, since equilibrium in the goods markets requires the ex post equalization of savings and investment.
