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Evaluating International Tax Reform

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  • Desai, Mihir A.
  • Hines, James R. Jr.

Abstract

This paper introduces "capital ownership neutrality" (CON) and "national ownership neutrality" (NON) as benchmarks for evaluating the desirability of international tax reforms, and applies them to analyze recent U.S. tax reform proposals. Tax systems satisfy CON if they do not distort the ownership of capital assets, which promotes global efficiency whenever the productivity of an investment differs based on its ownership. A regime in which all countries exempt foreign income from taxation satisfies CON, as does a regime in which all countries tax foreign income while providing foreign tax credits. Tax systems satisfy NON if they promote the profitability of domestic firms, and therefore home country welfare, by exempting foreign income from taxation. Standard normative benchmarks of capital export neutrality, national neutrality, and capital import neutrality carry very different implications, since they fail to account for the productivity effects of tax-induced changes in capital ownership. Proposed U.S. tax reforms that reduce the taxation of foreign income, thereby bringing the U.S. tax system more in line with the systems of other countries, have the potential to advance both American interests and global welfare.

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Bibliographic Info

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

Volume (Year): 56 (2003)
Issue (Month): 3 (September)
Pages: 487-502

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Handle: RePEc:ntj:journl:v:56:y:2003:i:3:p:487-502

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References

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  1. Michael P. Devereux & R. Glenn Hubbard, 2000. "Taxing Multinationals," NBER Working Papers 7920, National Bureau of Economic Research, Inc.
  2. Rosanne Altshuler & Harry Grubert, 2001. "Repatriation Taxes, Repatriation Strategies and Multinational Financial Policy," NBER Working Papers 8144, National Bureau of Economic Research, Inc.
  3. Hines, J.R. & Rice, E.M., 1990. "Fiscal Paradise: Foreign Tax Havens And American Business," Papers, Princeton, Woodrow Wilson School - Discussion Paper 56, Princeton, Woodrow Wilson School - Discussion Paper.
  4. Joel Slemrod & Carl Hansen & Roger Procter, 1994. "The Seesaw Principle in International Tax Policy," NBER Working Papers 4867, National Bureau of Economic Research, Inc.
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Cited by:
  1. Desai, Mihir A. & Foley, C. Fritz & Hines, James R. Jr., 2011. "Tax Policy And The Efficiency Of U.S. Direct Investment Abroad," National Tax Journal, National Tax Association, National Tax Association, vol. 64(4), pages 1055-82, December.
  2. Becker, Johannes & Fuest, Clemens, 2011. "Tax competition -- Greenfield investment versus mergers and acquisitions," Regional Science and Urban Economics, Elsevier, Elsevier, vol. 41(5), pages 476-486, September.
  3. Michael P Devereux & Simon Loretz, 2008. "Increased efficiency through consolidation and formula apportionment in the European Union?," Working Papers, Oxford University Centre for Business Taxation 0812, Oxford University Centre for Business Taxation.
  4. Michael Devereux, 2004. "Debating Proposed Reforms of the Taxation of Corporate Income in the European Union," International Tax and Public Finance, Springer, Springer, vol. 11(1), pages 71-89, January.
  5. Shafik Hebous & Martin Ruf & Alfons Weichenrieder, 2010. "The Effects of Taxation on the Location Decision of Multinational Firms: M&A vs. Greenfield Investments," CESifo Working Paper Series, CESifo Group Munich 3076, CESifo Group Munich.
  6. Reuven Avi-Yonah, 2005. "The Pitfalls of International Integration: A Comment on the Bush Proposal and its Aftermath," International Tax and Public Finance, Springer, Springer, vol. 12(1), pages 87-95, January.
  7. James Alm & Mir Ahmad Khan, 2008. "Assessing Enterprise Taxation and the Investment Climate in Pakistan," International Center for Public Policy Working Paper Series, at AYSPS, GSU, International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University paper0810, International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University.
  8. Ulrich Schreiber & Gregor Führich, 2009. "European group taxation-the role of exit taxes," European Journal of Law and Economics, Springer, Springer, vol. 27(3), pages 257-274, June.
  9. Reuven Avi-Yonah, . "The Pitfalls of International Integration: A Comment on the Bush Proposal and Its Aftermath," University of Michigan John M. Olin Center for Law & Economics Working Paper Series, University of Michigan John M. Olin Center for Law & Economics umichlwps-1007, University of Michigan John M. Olin Center for Law & Economics.
  10. Johannes Becker, 2009. "Taxation of Foreign Profits with Heterogeneous Multinational Firms," CESifo Working Paper Series, CESifo Group Munich 2899, CESifo Group Munich.
  11. Estelle P. Dauchy & Sebastien Bradley & Makoto Hasegawa, 2013. "Investor Valuations of Japan's Adoption of a Territorial Tax Regime: Quantifying the Direct and Competitive Effects of International Tax Reform," Working Papers, Center for Economic and Financial Research (CEFIR) w0201, Center for Economic and Financial Research (CEFIR).
  12. Tajika, Eiji & Nakatani, Ryota, 2008. "Welcome Home to Japan: Repatriation of Foreign Profits by Japanese Multinationals," Discussion Papers, Graduate School of Economics, Hitotsubashi University 2008-04, Graduate School of Economics, Hitotsubashi University.
  13. Michael P. Devereux, 2008. "Taxation of outbound direct investment: economic principles and tax policy considerations," Oxford Review of Economic Policy, Oxford University Press, Oxford University Press, vol. 24(4), pages 698-719, winter.
  14. Devereux, Michael P., 2012. "Issues In The Design Of Taxes On Corporate Profit," National Tax Journal, National Tax Association, National Tax Association, vol. 65(3), pages 709-30, September.
  15. Johannes Becker & Clemens Fuest, 2010. "Taxing Foreign Profits With International Mergers And Acquisitions," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 51(1), pages 171-186, 02.
  16. Johannes Becker & Clemens Fuest, 2007. "Corporate Tax Policy and International Mergers and Acquisitions – Is the Tax Exemption System Superior?," CESifo Working Paper Series, CESifo Group Munich 1884, CESifo Group Munich.
  17. Elschner, Christina & Heckemeyer, Jost Henrich & Spengel, Christoph, 2009. "Besteuerungsprinzipien und effektive Unternehmenssteuerbelastungen in der Europäischen Union," ZEW Discussion Papers, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research 09-034, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
  18. Peter Egger & Valeria Merlo & Martin Ruf & Georg Wamser, 2012. "Consequences of the New UK Tax Exemption System: Evidence from Micro-level Data," CESifo Working Paper Series, CESifo Group Munich 3942, CESifo Group Munich.

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