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Pareto-Efficient International Taxation

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  • Michael Keen
  • David Wildasin

Abstract

This paper analyzes Pareto-efficient international tax regimes. Because every country faces its own national budget constraint, the Diamond-Mirrlees production-efficiency theorem, which underlies key tenets of policy advice in international taxation - the desirability of destination basis for commodity taxation, of the residence principle for capital income taxation, and of free trade - does not apply. The paper establishes conditions - relating to the availability of explicit or implicit devices for reallocating tax revenues across countries - under which production efficiency is nevertheless desirable, and characterizes the precise ways in which Pareto-efficient international taxation may require violation of established tenets.

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Bibliographic Info

Article provided by American Economic Association in its journal American Economic Review.

Volume (Year): 94 (2004)
Issue (Month): 1 (March)
Pages: 259-275

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Handle: RePEc:aea:aecrev:v:94:y:2004:i:1:p:259-275

Note: DOI: 10.1257/000282804322970797
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  1. Kotsogiannis, Christos & Makris, Miltiadis, 2002. "On production efficiency in federal systems," Economics Letters, Elsevier, vol. 76(2), pages 281-287, July.
  2. Lockwood, Ben, 1993. "Commodity tax competition under destination and origin principles," Journal of Public Economics, Elsevier, vol. 52(2), pages 141-162, September.
  3. Michael Keen & Hannu Piekkola, 1996. "Simple rules for the optimal taxation of international capital income," IFS Working Papers, Institute for Fiscal Studies W96/18, Institute for Fiscal Studies.
  4. Stiglitz, Joseph E., 1982. "Self-selection and Pareto efficient taxation," Journal of Public Economics, Elsevier, vol. 17(2), pages 213-240, March.
  5. James R. Hines Jr., 2000. "Tax Sparing and Direct Investment in Developing Countries," NBER Chapters, in: International Taxation and Multinational Activity, pages 39-72 National Bureau of Economic Research, Inc.
  6. Auerbach, Alan J., 1985. "The theory of excess burden and optimal taxation," Handbook of Public Economics, Elsevier, in: A. J. Auerbach & M. Feldstein (ed.), Handbook of Public Economics, edition 1, volume 1, chapter 2, pages 61-127 Elsevier.
  7. Devarajan, Shantayanan & Go, Delfin & Schiff, Maurice & Suthiwart-Narueput, Sethaput, 1996. "The whys and why nots of export taxation," Policy Research Working Paper Series 1684, The World Bank.
  8. Richard Harris, 1976. "Efficient Commodity Taxation," Working Papers, Queen's University, Department of Economics 243, Queen's University, Department of Economics.
  9. Huizinga, Harry & Nielsen, Soren Bo, 1997. "Capital income and profit taxation with foreign ownership of firms," Journal of International Economics, Elsevier, vol. 42(1-2), pages 149-165, February.
  10. Keen, Michael & Lahiri, Sajal, 1998. "The comparison between destination and origin principles under imperfect competition," Journal of International Economics, Elsevier, vol. 45(2), pages 323-350, August.
  11. Dasgupta, Partha & Stiglitz, Joseph E, 1972. "On Optimal Taxation and Public Production," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 39(1), pages 87-103, January.
  12. Stefan Homburg, 1999. "Competition and Co-ordination in International Capital Income Taxation," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, Mohr Siebeck, Tübingen, vol. 56(1), pages 1-17, March.
  13. Arja H. Turunen-Red & Alan D. Woodland, 1996. "Recent Developments in Multilateral Policy Reform," Canadian Journal of Economics, Canadian Economics Association, vol. 29(s1), pages 394-400, April.
  14. Peter A. Diamond & J. A. Mirrlees, 1968. "Optimal Taxation and Public Production," Working papers 22, Massachusetts Institute of Technology (MIT), Department of Economics.
  15. Mirrlees, James A, 1972. "On Producer Taxation," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 39(1), pages 105-11, January.
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