 Harberger's key insight was that the mobility of capital between sectors means that in long-run equilibrium the after-tax rate of return to capital is equalized between the two sectors.In this way, the corporate income tax lowers the after-tax real rate of return to all owners of capital equally.When the income of capital owners in the corporate sector is taxed, the initial after-tax rate of return on corporate capital falls, prompting a shift of capital to the untaxed sector.