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The Case against Deferral: A Deferential Reconsideration

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  • Hines, James R. Jr.

Abstract

The ability to defer home country taxation of foreign income is widely criticized as encouraging excessive foreign investment. This criticism is based on a model in which the function of deferral is to reallocate a fixed supply of capital between foreign and domestic uses. In realistic situations, however, deferral enhances the value to home countries of inframarginal foreign investment, taxation raises the value of marginal foreign investment, and the trade-off between foreign and domestic investment need not be one-for-one. Together, these considerations imply that deferring home taxation of foreign income can enhance economic efficiency.

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Bibliographic Info

Article provided by National Tax Association in its journal National Tax Journal.

Volume (Year): 52 (1999)
Issue (Month): n. 3 (September Citation: 52 National Tax Journal 385-404 (September 1999))
Pages: 385-404

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Handle: RePEc:ntj:journl:v:52:y:1999:i:n._3:p:385-404

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References

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  1. James R. Hines, Jr., 1998. ""Tax Sparing" and Direct Investment in Developing Countries," NBER Working Papers 6728, National Bureau of Economic Research, Inc.
  2. Hines, James R, Jr & Rice, Eric M, 1994. "Fiscal Paradise: Foreign Tax Havens and American Business," The Quarterly Journal of Economics, MIT Press, vol. 109(1), pages 149-82, February.
  3. James R. Hines Jr., 1998. "Investment Ramifications of Distortionary Tax Subsidies," NBER Working Papers 6615, National Bureau of Economic Research, Inc.
  4. 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.
  5. Bond, Eric W, 1981. "Tax Holidays and Industry Behavior," The Review of Economics and Statistics, MIT Press, vol. 63(1), pages 88-95, February.
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Cited by:
  1. Altshuler, Rosanne & Hubbard, R. Glenn, 2003. "The effect of the tax reform act of 1986 on the location of assets in financial services firms," Journal of Public Economics, Elsevier, vol. 87(1), pages 109-127, January.
  2. Michael P. Devereux & R. Glenn Hubbard, 2000. "Taxing Multinationals," NBER Working Papers 7920, National Bureau of Economic Research, Inc.
  3. Gordon, Roger H. & Hines, James Jr, 2002. "International taxation," Handbook of Public Economics, in: A. J. Auerbach & M. Feldstein (ed.), Handbook of Public Economics, edition 1, volume 4, chapter 28, pages 1935-1995 Elsevier.
  4. Mihir A. Desai & James R. Hines, Jr., 2001. "The Uneasy Marriage of Export Incentives and the Income Tax," NBER Chapters, in: Tax Policy and the Economy, Volume 15, pages 41-94 National Bureau of Economic Research, Inc.
  5. Mihir A. Desai & C. Fritz Foley & James R. Hines Jr., 2005. "Foreign Direct Investment and Domestic Economic Activity," NBER Working Papers 11717, National Bureau of Economic Research, Inc.
  6. Rosanne Altshuler & R. Glenn Hubbard, 2002. "The Effect of the Tax Reform Act of 1986 on the Location of Assets," Departmental Working Papers 200012, Rutgers University, Department of Economics.
  7. Desai, Mihir A. & Foley, C. Fritz & Hines, James R. Jr., 2001. "Repatriation Taxes and Dividend Distortions," National Tax Journal, National Tax Association, vol. 54(n. 4), pages 829-51, December .
  8. Rosanne Altshuler, 2000. "Recent Developments in the Debate on Deferral," Departmental Working Papers 200013, Rutgers University, Department of Economics.

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