Is exit tax a good idea for the taxman?

Abstract

PurposeThe purpose of this paper is to study whether it is a rational choice for a tax authority to impose an exit tax on capitalists.Design/methodology/approachThe tax authority chooses a lump-sum exit tax to maximize a weighted objective of expected tax revenue and expected tax horizon. The tax revene consists of capital income taxes and exit taxes. Capitalists are motivated by sustainable capital accumulation and hence maximize the terminal capital stock.FindingsThe author finds that the objective function of the tax authority is strictly increasing in the exit tax, which holds for extensions with sales tax, labor income tax or proportional exit tax, and hence equilibrium exit tax is equal to an exogenous upper bound.Originality/valueTo the author’s knowledge, no existing literature investigates this issue theoretically, and hence the current paper represents the first attempt. The author hopes this theoretical analysis can trigger related empirical studies.