Abstract
We integrate trade modeling and tax modeling, by evaluating the international spillover effects of changes in US tax policy. We use a static computational general-equilibrium model that divides the world into four regions, with data for 1995 from the Global Trade Analysis Project. We incorporate a labor/leisure choice and international cross-ownership of assets. Our simulations suggest that unilateral elimination of US capital taxation generates welfare gains for the United States. If the other regions do not respond to the US policy change, they suffer welfare losses. However, if all regions eliminate capital taxes, welfare gains accrue for the entire world.
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