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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)
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. Hines, J.R. & Rice, E.M., 1990. "Fiscal Paradise: Foreign Tax Havens And American Business," Papers 56, Princeton, Woodrow Wilson School - Discussion Paper.
  2. Bond, Eric W, 1981. "Tax Holidays and Industry Behavior," The Review of Economics and Statistics, MIT Press, vol. 63(1), pages 88-95, February.
  3. 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.
  4. James R. Hines Jr., 1998. "Investment Ramifications of Distortionary Tax Subsidies," NBER Working Papers 6615, National Bureau of Economic Research, Inc.
  5. 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.
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Cited by:
  1. Roger H. Gordon & James R. Hines Jr., 2002. "International Taxation," NBER Working Papers 8854, National Bureau of Economic Research, Inc.
  2. Michael P. Devereux & R. Glenn Hubbard, 2000. "Taxing Multinationals," NBER Working Papers 7920, National Bureau of Economic Research, Inc.
  3. Mihir A. Desai & James R. Hines Jr., 2000. "The Uneasy Marriage of Export Incentives and the Income Tax," NBER Working Papers 8009, National Bureau of Economic Research, Inc.
  4. Rosanne Altshuler, 2000. "Recent Developments in the Debate on Deferral," Departmental Working Papers 200013, Rutgers University, Department of Economics.
  5. 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.
  6. 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.
  7. 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.
  8. 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.

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