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Taxation and Integrated Financial Markets: The Challenges of Derivatives and Other Financial Innovations

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  • Julian Alworth
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    Abstract

    The past decade has witnessed the explosive growth of a multiplicity of new instruments which have altered the financial landscape. These transactions have highlighted many of the inconsistencies, asymmetries and shortcomings of current tax practices and challenged some basic tax principles. The ensuing uncertainties could over the long term place considerable strain on the tax system by increasing the opportunities for abuse and raising overall compliance costs. At the same time derivatives have provided a better understanding of the operation tax laws and from this standpoint have provided a positive input into policy design. This paper has three objectives: (a) to illustrate some of the weaknesses of the current tax system by focusing on several types of novel transaction; (b) to assess the validity of various types of adjustment proposed to tax code; (c) to draw out the implications of these developments for the ongoing debate over fundamental tax reforms and over source versus residence based taxes. Copyright Kluwer Academic Publishers 1998

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    File URL: http://hdl.handle.net/10.1023/A:1008650823569
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    Bibliographic Info

    Article provided by Springer in its journal International Tax and Public Finance.

    Volume (Year): 5 (1998)
    Issue (Month): 4 (October)
    Pages: 507-534

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    Handle: RePEc:kap:itaxpf:v:5:y:1998:i:4:p:507-534

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

    Related research

    Keywords: derivatives; taxation; withholding taxes;

    References

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    1. Alan J. Auerbach, 1991. "Retrospective Capital Gains Taxation," NBER Working Papers 2792, National Bureau of Economic Research, Inc.
    2. Joseph E. Stiglitz, 1986. "Some Aspects of the Taxation of Capital Gains," NBER Working Papers 1094, National Bureau of Economic Research, Inc.
    3. David F. Bradford, 1997. "Fixing Capital Gains: Symmetry, Consistency and Correctness in the Taxation of Financial Instruments," NBER Working Papers 5754, National Bureau of Economic Research, Inc.
    4. Huizinga, H., 1994. "The Incidence of Interest Withholding Taxes: Evidence from the LCD Loan Market," Papers 9495, Tilburg - Center for Economic Research.
    5. William Vickrey, 1939. "Averaging of Income for Income-Tax Purposes," Journal of Political Economy, University of Chicago Press, vol. 47, pages 379.
    6. Harry Huizinga, 1994. "International interest withholding taxation: Prospects for a common European policy," International Tax and Public Finance, Springer, vol. 1(3), pages 277-291, October.
    7. Ross, Stephen A, 1987. "Arbitrage and Martingales with Taxation," Journal of Political Economy, University of Chicago Press, vol. 95(2), pages 371-93, April.
    8. Roger H. Gordon, 1990. "Can Capital Income Taxes Survive in Open Economies?," NBER Working Papers 3416, National Bureau of Economic Research, Inc.
    9. Huizinga, H.P., 1994. "The incidence of interest withholding taxes: Evidence from the LDC loan markets," Discussion Paper 1994-95, Tilburg University, Center for Economic Research.
    10. Jack M. Mintz, 1992. "Is There a Future for Capital Income Taxation?," OECD Economics Department Working Papers 108, OECD Publishing.
    11. Miller, Merton H., 1986. "Financial Innovation: The Last Twenty Years and the Next," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 21(04), pages 459-471, December.
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    Cited by:
    1. Dirk Schindler & Bodo Hilgers, 2002. "Shall We Tax the Risk Premium?," CoFE Discussion Paper 02-17, Center of Finance and Econometrics, University of Konstanz.
    2. Wolfgang Eggert & Martin Kolmar, 2002. "Residence-Based Capital Taxation in a Small Open Economy: Why Information is Voluntarily Exchanged and Why it is Not," International Tax and Public Finance, Springer, vol. 9(4), pages 465-482, August.
    3. Harry Huizinga & Søren Bo Nielsen, . "Withholding Taxes or Information Exchange: The Taxation of International Interest Flows," EPRU Working Paper Series 00-19, Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics.
    4. Dirk Schindler, 2002. "Besteuerung des Nichts — Steuerarbitrage und das schwindende Aufkommen bei Kapitaleinkommensteuern," CoFE Discussion Paper 02-16, Center of Finance and Econometrics, University of Konstanz.
    5. Andreas Haufler, 1999. "Prospects for co-ordination of corporate taxation and the taxation of interest income in the EU," Fiscal Studies, Institute for Fiscal Studies, vol. 20(2), pages 133-153, June.
    6. Homburg, Stefan, 2000. "Perspektiven der internationalen Unternehmensbesteuerung," EconStor Open Access Articles, ZBW - German National Library of Economics, pages 9-61.

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