This paper characterises the domestic tax systems which yield Pareto-efficient outcomes for a two-country world economy in which each country uses distortionary taxes. Such outcomes are compared with the Nash equilibria of the world economy when each country uses its domestic tax system to...

According to conventional wisdom internationally mobile capital should not be taxed or should be taxed at a lower rate than labour. An important underlying assumption behind this view is that there are no market imperfections, in particular that labour markets clear competitively. At least for...