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

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References

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  1. 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.
  2. 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.
  3. Auerbach, Alan J., 1979. "Share valuation and corporate equity policy," Journal of Public Economics, Elsevier, vol. 11(3), pages 291-305, June.
  4. 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.
  5. James R. Hines Jr., 1992. "Credit and Deferral as International Investment Incentives," NBER Working Papers 4191, National Bureau of Economic Research, Inc.
  6. King, Mervyn A. & Fullerton, Don, 2010. "The Taxation of Income from Capital," National Bureau of Economic Research Books, University of Chicago Press, edition 0, number 9780226436319, August.
  7. Eichengreen, Barry, 1989. "The Capital Levy in Theory and Practice," CEPR Discussion Papers 350, C.E.P.R. Discussion Papers.
  8. 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.
  9. Alan J. Auerbach & James M. Poterba, 1987. "Why Have Corporate Tax Revenues Declined?," NBER Working Papers 2118, National Bureau of Economic Research, Inc.
  10. Razin, Assaf & Sadka, Efraim, 1991. "International tax competition and gains from tax harmonization," Economics Letters, Elsevier, vol. 37(1), pages 69-76, September.
  11. Hans-Werner Sinn, 1990. "The Vanishing Harberger Triangle," NBER Working Papers 3225, National Bureau of Economic Research, Inc.
  12. 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.
  13. David F. Bradford, 1979. "The Incidence and Allocation Effects of a Tax on Corporate Distributions," NBER Working Papers 0349, National Bureau of Economic Research, Inc.
  14. 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.
  15. Feldstein, Martin S, 1976. "Personal Taxation and Portfolio Composition: An Econometric Analysis," Econometrica, Econometric Society, vol. 44(4), pages 631-50, July.
  16. 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.
  17. 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.
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Citations

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Cited by:
  1. Hines, J.R., 1990. "The Transfer Pricing Problem: Where The Profit Are," Papers 64, Princeton, Woodrow Wilson School - Discussion Paper.
  2. Persson, Torsten & Tabellini, Guido, 1991. "The Politics of 1992: Fiscal Policy and European Integration," CEPR Discussion Papers 501, C.E.P.R. Discussion Papers.
  3. Roger H. Gordon, 1990. "Can Capital Income Taxes Survive in Open Economies?," NBER Working Papers 3416, National Bureau of Economic Research, Inc.
  4. 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.
  5. 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.
  6. 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.
  7. Libman, Alexander, 2005. "Взаимодействие Государственных И Частных Структур В Интеграционных Группировах: Теоретические Подходы И Оп," MPRA Paper 17044, University Library of Munich, Germany.
  8. Marcel Gérard, 2002. "Tax Competition, the Distribution of MNE's Ownership and the Wage Formation Process," CESifo Working Paper Series 631, CESifo Group Munich.
  9. 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.

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