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Capital Mobility and Source-Based Taxation of Capital Income in Small Open Economies

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George Zodrow ()

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Abstract

This paper examines the taxation of capital income in a small open economy that faces a highly elastic supply of internationally mobile capital and increasing tax competition. The analysis considers a wide variety of additional factors that affect the determination of capital income taxation policy, including the desire to tax economic rents earned by foreign and domestic firms, the desire to take advantage of any treasury transfer effects, the role played by transfer pricing and other financial accounting manipulations by foreign multinationals, the need for a backstop to the personal income tax and various political concerns. The paper evaluates several potential income and consumption-based tax reforms in this context. Copyright Springer Science + Business Media, Inc. 2006

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File URL: http://hdl.handle.net/10.1007/s10797-006-4862-9
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Publisher Info
Article provided by Springer in its journal International Tax and Public Finance.

Volume (Year): 13 (2006)
Issue (Month): 2 (May)
Pages: 269-294
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Handle: RePEc:kap:itaxpf:v:13:y:2006:i:2:p:269-294

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Web page: http://www.springerlink.com/link.asp?id=102915

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Related research
Keywords: international taxation; capital income taxation; tax competition; dual income tax; income tax; consumption tax;

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. David F. Burgess, 1988. "On the Relevance of Export Demand Conditions for Capital Income Taxation in Open Economies," Canadian Journal of Economics, Canadian Economics Association, vol. 21(2), pages 285-311, May. [Downloadable!] (restricted)
  2. Sijbren Cnossen, 2003. "How Much Tax Coordination in the European Union?," Asia-Pacific Financial Markets, Springer, vol. 10(6), pages 625-649, November. [Downloadable!] (restricted)
  3. George R. Zodrow, 2007. "Should Capital Income be Subject to Consumption-Based Taxation?," Working Papers 0715, Oxford University Centre for Business Taxation. [Downloadable!]
  4. Markusen, James R, 1995. "The Boundaries of Multinational Enterprises and the Theory of International Trade," Journal of Economic Perspectives, American Economic Association, vol. 9(2), pages 169-89, Spring. [Downloadable!] (restricted)
  5. Clemens Fuest & Bernd Huber & Jack Mintz, 2003. "Capital Mobility and Tax Competition: A Survey," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
  6. Assaf Razin & Efraim Sadka, 1991. "International Tax Competition and Gains from Tax Harmonization," NBER Working Papers 3152, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  7. 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. [Downloadable!] (restricted)
    Other versions:
  8. Joel B. Slemrod, 1990. "Tax Effects on Foreign Direct Investment in the United States: Evidence from a Cross-Country Comparison," NBER Chapters, in: Taxation in the Global Economy, pages 79-122 National Bureau of Economic Research, Inc. [Downloadable!]
    Other versions:
  9. Sijbren Cnossen, 1996. "Company Taxes in the European Union: Criteria and Options for Reform," Fiscal Studies, Institute for Fiscal Studies, vol. 17(4), pages 67-97, November. [Downloadable!]
  10. Bucovetsky, Sam & Wilson, John Douglas, 1991. "Tax competition with two tax instruments," Regional Science and Urban Economics, Elsevier, vol. 21(3), pages 333-350, November. [Downloadable!] (restricted)
  11. George Zodrow, 2003. "Tax Competition and Tax Coordination in the European Union," Asia-Pacific Financial Markets, Springer, vol. 10(6), pages 651-671, November. [Downloadable!] (restricted)
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  12. Sinn, Hans-Werner, 1990. "Tax harmonization and tax competition in Europe," European Economic Review, Elsevier, vol. 34(2-3), pages 489-504, May. [Downloadable!] (restricted)
    Other versions:
  13. Jack Mintz, 1995. "Corporation tax: a survey," Fiscal Studies, Institute for Fiscal Studies, vol. 16(4), pages 23-68, November. [Downloadable!]
  14. Buchanan, James M, 1987. "Tax Reform as Political Choice," Journal of Economic Perspectives, American Economic Association, vol. 1(1), pages 29-35, Summer. [Downloadable!] (restricted)
  15. Nielsen, Soren Bo & Sorensen, Peter Birch, 1997. "On the optimality of the Nordic system of dual income taxation," Journal of Public Economics, Elsevier, vol. 63(3), pages 311-329, February. [Downloadable!] (restricted)
  16. Devereux, Michael P. & Griffith, Rachel, 2003. "The Impact of Corporate Taxation on the Location of Capital: A Review," Economic Analysis and Policy (EAP), Queensland University of Technology (QUT), School of Economics and Finance, vol. 33(2), pages 275-292, September. [Downloadable!]
  17. Oates, Wallace E., 2001. "Fiscal competition and European Union: contrasting perspectives," Regional Science and Urban Economics, Elsevier, vol. 31(2-3), pages 133-145, April. [Downloadable!] (restricted)
  18. Wilson, John Douglas & Wildasin, David E., 2004. "Capital tax competition: bane or boon," Journal of Public Economics, Elsevier, vol. 88(6), pages 1065-1091, June. [Downloadable!] (restricted)
  19. James R. Hines, Jr. & Eric M. Rice, 1994. "Fiscal Paradise: Foreign Tax Havens and American Business," NBER Working Papers 3477, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  20. Hartman, David G., 1985. "Tax policy and foreign direct investment," Journal of Public Economics, Elsevier, vol. 26(1), pages 107-121, February. [Downloadable!] (restricted)
  21. Zee, Howell H. & Stotsky, Janet G. & Ley, Eduardo, 2002. "Tax Incentives for Business Investment: A Primer for Policy Makers in Developing Countries," World Development, Elsevier, vol. 30(9), pages 1497-1516, September. [Downloadable!] (restricted)
  22. Charles Mclure & George Zodrow, 1996. "A hybrid consumption-based direct tax proposed for Bolivia," International Tax and Public Finance, Springer, vol. 3(1), pages 97-112, January. [Downloadable!] (restricted)
  23. Bruce A. Blonigen & Miao Wang, 2004. "Inappropriate Pooling of Wealthy and Poor Countries in Empirical FDI Studies," NBER Working Papers 10378, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  24. Gordon, Roger H, 1986. "Taxation of Investment and Savings in a World Economy," American Economic Review, American Economic Association, vol. 76(5), pages 1086-1102, December. [Downloadable!] (restricted)
  25. Mihir A. Desai & C. Fritz Foley & James R. Hines Jr., 2001. "Repatriation Taxes and Dividend Distortions," NBER Working Papers 8507, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  26. Michael P. Devereux & Rachel Griffith & Alexander Klemm, 2002. "Corporate income tax reforms and international tax competition," Economic Policy, CEPR, CES, MSH, vol. 17(35), pages 449-495, October. [Downloadable!] (restricted)
  27. David Altig et al., 2001. "Simulating Fundamental Tax Reform in the United States," American Economic Review, American Economic Association, vol. 91(3), pages 574-595, June. [Downloadable!] (restricted)
  28. Devereux, Michael P. & Griffith, Rachel, 1998. "Taxes and the location of production: evidence from a panel of US multinationals," Journal of Public Economics, Elsevier, vol. 68(3), pages 335-367, June. [Downloadable!] (restricted)
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  29. David F. Bradford, 1996. "Consumption Taxes: Some Fundamental Transition Issues," NBER Working Papers 5290, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  30. Gordon, Roger H. & Varian, Hal R., 1989. "Taxation of asset income in the presence of a world securities market," Journal of International Economics, Elsevier, vol. 26(3-4), pages 205-226, May. [Downloadable!] (restricted)
    Other versions:
  31. Cnossen, Sijbren, 2003. "How Much Tax Coordination in the European Union?," International Tax and Public Finance, Springer, vol. 10(6), pages 625-49, November. [Downloadable!] (restricted)
  32. Zodrow, George R. & McLure, Charles E. Jr., 1988. "Implementing direct consumption taxes in developing countries," Policy Research Working Paper Series 131, The World Bank. [Downloadable!]
  33. Michael J. Boskin & William G. Gale, 1987. "New Results on the Effects of Tax Policy on the International Location of Investment," NBER Chapters, in: The Effects of Taxation on Capital Accumulation, pages 201-222 National Bureau of Economic Research, Inc. [Downloadable!]
    Other versions:
  34. Wilson, John D., 1986. "A theory of interregional tax competition," Journal of Urban Economics, Elsevier, vol. 19(3), pages 296-315, May. [Downloadable!] (restricted)
Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Athiphat Muthitacharoen & George R. Zodrow, 2008. "The Efficiency Costs of Local Property Tax," International Studies Program Working Paper Series, at AYSPS, GSU paper0815, International Studies Program, Andrew Young School of Policy Studies, Georgia State University. [Downloadable!]
  2. Charles E. McLure, Jr. & George R. Zodrow, 2006. "Consumption-Based Direct Taxes: A Guided Tour of the Amusement Park," International Studies Program Working Paper Series, at AYSPS, GSU paper0635, International Studies Program, Andrew Young School of Policy Studies, Georgia State University. [Downloadable!]
    Other versions:
  3. Henrekson, Magnus & Sanandaji, Tino, 2008. "Entrepreneurship and the Theory of Taxation," Working Paper Series 732, Research Institute of Industrial Economics, revised 19 Aug 2009. [Downloadable!]
  4. John W. Diamond & George R. Zodrow, 2007. "Economic Effects of A Personal Capital Income Tax Add-on to a Consumption Tax," International Studies Program Working Paper Series, at AYSPS, GSU paper0715, International Studies Program, Andrew Young School of Policy Studies, Georgia State University. [Downloadable!]
    Other versions:
  5. Peter Birch Sørensen, 2006. "Can Capital Income Taxes Survive? And Should They?," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
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