Abstract
This paper shows that, from the viewpoint of income redistribution and under the assumption of a positive correlation between labor income and capital income, capital market integration requires a shift from capital taxation to labor taxation. A higher degree of capital mobility lowers the capital tax rate, and the reduced redistribution of capital income should be counteracted by greater redistribution of labor income. Therefore, this paper argues for a more redistributive labor tax as a remedy for the detrimental effect of capital tax competition on income redistribution.
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