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Capital Flight and Tax Competition: Are there Viable Solutions to Both Problems

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  • Giovannini, Alberto
  • Hines Jr, James R

Abstract

This paper discusses a model corporate tax system based on the application of the residence principle. This tax system, while preserving national sovereignties, minimizes the distortions arising from international capital mobility. The paper is motivated by an analysis of European capital income tax systems, and of the distortions that might arise as obstacles to international capital flows diminish. The alternative system that we analyse has two main properties: it exploits the territoriality of law enforcement, and it allows countries to set the corporate tax rate -- and the extent of double taxation of corporate income -- independently.

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Bibliographic Info

Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 416.

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Date of creation: May 1990
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Handle: RePEc:cpr:ceprdp:416

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Related research

Keywords: Corporate Income Tax; Foreign Direct Investment; Foreign Tax Credit; International Capital Mobility;

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References

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  1. Feldstein, Martin S, 1976. "Personal Taxation and Portfolio Composition: An Econometric Analysis," Econometrica, Econometric Society, vol. 44(4), pages 631-50, July.
  2. Sinn, Hans-Werner, 1991. "The vanishing harberger triangle," Munich Reprints in Economics 19842, University of Munich, Department of Economics.
  3. Auerbach, Alan J & Hines, James R, Jr, 1988. "Investment Tax Incentives and Frequent Tax Reforms," American Economic Review, American Economic Association, vol. 78(2), pages 211-16, May.
  4. Summers, L.H. & Summers, V.P., 1989. "When Financial Markets Work Too Well : A Cautious Case For A Securities Transactions Tax," Papers t12, Columbia - Center for Futures Markets.
  5. Alan J. Auerbach & James M. Poterba, 1986. "Why Have Corporate Tax Revenues Declined?," Working papers 435, Massachusetts Institute of Technology (MIT), Department of Economics.
  6. Eichengreen, Barry, 1989. "The Capital Levy in Theory and Practice," CEPR Discussion Papers 350, C.E.P.R. Discussion Papers.
  7. James R. Hines, Jr., 1988. "Taxation and U.S. Multinational Investment," NBER Chapters, in: Tax Policy and the Economy: Volume 2, pages 33-62 National Bureau of Economic Research, Inc.
  8. Gravelle, Jane G & Kotlikoff, Laurence J, 1989. "The Incidence and Efficiency Costs of Corporate Taxation When Corporate and Noncorporate Firms Produce the Same Good," Journal of Political Economy, University of Chicago Press, vol. 97(4), pages 749-80, August.
  9. Assaf Razin & Efraim Sadka, 1989. "International Tax Competition and Gains from Tax Harmonization," NBER Working Papers 3152, National Bureau of Economic Research, Inc.
  10. Gordon, Roger H, 1986. "Taxation of Investment and Savings in a World Economy," American Economic Review, American Economic Association, vol. 76(5), pages 1086-1102, December.
  11. Hoshi, Takeo & Kashyap, Anil & Scharfstein, David, 1991. "Corporate Structure, Liquidity, and Investment: Evidence from Japanese Industrial Groups," The Quarterly Journal of Economics, MIT Press, vol. 106(1), pages 33-60, February.
  12. Hines, James Jr., 1994. "Credit and deferral as international investment incentives," Journal of Public Economics, Elsevier, vol. 55(2), pages 323-347, October.
  13. Alan J. Auerbach, 1980. "Share Valuation and Corporate Equity Policy," NBER Working Papers 0255, National Bureau of Economic Research, Inc.
  14. Stiglitz, Joseph E., 1973. "Taxation, corporate financial policy, and the cost of capital," Journal of Public Economics, Elsevier, vol. 2(1), pages 1-34, February.
  15. Alan J. Auerbach, 1983. "Corporate Taxation in the United States," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 14(2), pages 451-514.
  16. Bradford, David F., 1981. "The incidence and allocation effects of a tax on corporate distributions," Journal of Public Economics, Elsevier, vol. 15(1), pages 1-22, February.
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Citations

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Cited by:
  1. Torsten Persson & Guido Tabellini, 1990. "The Politics of 1992: Fiscal Policy and European Integration," NBER Working Papers 3460, National Bureau of Economic Research, Inc.
  2. Enrique G. Mendoza & Linda L. Tesar, 2004. "Winners and Losers of Tax Competition in the European Union," Working Papers 508, Research Seminar in International Economics, University of Michigan.
  3. James R. Hines, Jr., 1990. "The Transfer Pricing Problem: Where the Profits Are," NBER Working Papers 3538, National Bureau of Economic Research, Inc.
  4. Gordon, R.H., 1990. "Canada-U.S. Free Trade And Pressures For Tax Harmonization," Working Papers 260, Research Seminar in International Economics, University of Michigan.
  5. Libman, Alexander, 2005. "Взаимодействие Государственных И Частных Структур В Интеграционных Группировах: Теоретические Подходы И Оп," MPRA Paper 17044, University Library of Munich, Germany.
  6. Roger H. Gordon, 1990. "Can Capital Income Taxes Survive in Open Economies?," NBER Working Papers 3416, National Bureau of Economic Research, Inc.
  7. Daniele Checchi, 1992. "Capital controls and distribution of income: Empirical evidence for Great Britain Japan and Australia," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 128(3), pages 558-587, September.
  8. Gérard, Marcel, 1999. "L’imposition des revenus de l’investissement en Europe, une hétérogénéité coûteuse," L'Actualité Economique, Société Canadienne de Science Economique, vol. 75(1), pages 401-426, mars-juin.
  9. Marcel Gérard, 2002. "Tax Competition, the Distribution of MNE's Ownership and the Wage Formation Process," CESifo Working Paper Series 631, CESifo Group Munich.

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