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International Capital Mobility and Tax Evasion

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  • Alberto Giovannini
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    Abstract

    This paper studies the welfare effects of international investment to evade domestic taxes on domestic investment income. Capital mobility for tax evasion eliminates distortions in the intertemporal allocation of consumption, but introduces distortions in domestic production. Conversely, a regime where residents pay taxes on all investment income, domestic and foreign, introduces distortions in intertemporal consumption allocation, but leaves domestic production distortion-free. The relative magnitude of the interest elasticity of savings and the interest elasticity of domestic investment determines the welfare effects of capital movements for the purpose tax evasion.

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    File URL: http://www.nber.org/papers/w2460.pdf
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    Bibliographic Info

    Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 2460.

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    Date of creation: Dec 1987
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    Publication status: published as "International Capital Mobility and Tax Avoidance." Banca Nazionale del Lavoro Quarterly Review, No. 177, pp. 197-223, June 1991.
    Handle: RePEc:nbr:nberwo:2460

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    References

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    1. Jeremy Greenwood & Kent P. Kimbrough, 1985. "Capital Controls and Fiscal Policy in the World Economy," Canadian Journal of Economics, Canadian Economics Association, Canadian Economics Association, vol. 18(4), pages 743-65, November.
    2. James M. Poterba, 1987. "Tax Evasion and Capital Gains Taxation," Working papers, Massachusetts Institute of Technology (MIT), Department of Economics 436, Massachusetts Institute of Technology (MIT), Department of Economics.
    3. Jeremy Greenwood & Kent P. Kimbrough, 1987. "An Investigation in the Theory of Foreign Exchange Controls," Canadian Journal of Economics, Canadian Economics Association, Canadian Economics Association, vol. 20(2), pages 271-88, May.
    4. Jacob A. Frenkel & Assaf Razin, 1989. "International Effects of Tax Reforms," NBER Working Papers 2873, National Bureau of Economic Research, Inc.
    5. Alan C. Stockman & Alejandro Hernandez D., 1985. "Exchange Controls, Capital Controls, and International Financial Markets," NBER Working Papers 1755, National Bureau of Economic Research, Inc.
    6. Adams, Charles & Greenwood, Jeremy, 1985. "Dual exchange rate systems and capital controls: An investigation," Journal of International Economics, Elsevier, Elsevier, vol. 18(1-2), pages 43-63, February.
    7. Horst, Thomas, 1980. "A Note on the Optimal Taxation of International Investment Income," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 94(4), pages 793-98, June.
    8. Joshua Aizenman, 1986. "On the Complementarity of Commercial Policy, Capital Controls, and Inflation Tax," Canadian Journal of Economics, Canadian Economics Association, Canadian Economics Association, vol. 19(1), pages 114-33, February.
    9. Maurice Obstfeld, 1985. "Capital Mobility in the World Economy: Theory and Measurement," NBER Working Papers 1692, National Bureau of Economic Research, Inc.
    10. Jagdish N. Bhagwati, 1978. "Anatomy and Consequences of Exchange Control Regimes," NBER Books, National Bureau of Economic Research, Inc, number bhag78-1, July.
    11. Fischer, Stanley, 1980. "Dynamic inconsistency, cooperation and the benevolent dissembling government," Journal of Economic Dynamics and Control, Elsevier, Elsevier, vol. 2(1), pages 93-107, May.
    12. Findlay, Christopher C, 1986. "Optimal Taxation of International Income Flows," The Economic Record, The Economic Society of Australia, The Economic Society of Australia, vol. 62(177), pages 208-14, June.
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    Cited by:
    1. Slemrod, J., 1990. "A North-South Model Of Taxation And Capital Flows," Working Papers, Research Seminar in International Economics, University of Michigan 257, Research Seminar in International Economics, University of Michigan.
    2. Shah, Anwar & Slemrod, Joel, 1990. "Tax sensitivity of foreign direct investment : an empirical assessment," Policy Research Working Paper Series 434, The World Bank.
    3. Lawrence H. Goulder & Barry Eichengreen, 1989. "Savings Promotion, Investment Promotion, and International Competitiveness," NBER Chapters, in: Trade Policies for International Competitiveness, pages 5-52 National Bureau of Economic Research, Inc.

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