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Foreign Tax Credit and the Current Account

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  • Yasushi Iwamoto
  • Akihisa Shibata

Abstract

This paper provides a general equilibrium analysis of the effects of a foreign tax credit (FTC) provision on current account dynamics of a small, open economy. Because of the asymmetric functioning of FTC, the rate of return on domestic capital is determined by the arbitrage of the marginal investor, the investor in the creditor country. Thus a change in the home country capital income tax rate causes different responses in long-run foreign asset holdings and the current account dynamics depending upon whether the country is a net creditor or debtor and upon whether the country has a higher tax rate than the foreign country or not. Copyright Kluwer Academic Publishers 1999

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Bibliographic Info

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

Volume (Year): 6 (1999)
Issue (Month): 2 (May)
Pages: 131-148

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Handle: RePEc:kap:itaxpf:v:6:y:1999:i:2:p:131-148

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

Related research

Keywords: international taxation; foreign tax credit; capital income taxation; current account;

References

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Cited by:
  1. Yoshiyasu Ono & Akihisa Shibata, 2006. "Capital Income Taxation and Specialization Patterns: Investment Tax vs. Saving Tax," KIER Working Papers 613, Kyoto University, Institute of Economic Research.
  2. Yasushi Iwamoto & Akihisa Shibata, 2008. "International and Intergenerational Aspects of Capital Income Taxation in an Endogenously Growing World Economy," Review of International Economics, Wiley Blackwell, vol. 16(2), pages 383-399, 05.

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