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

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  • Alberto Giovannini
  • James R. Hines, Jr.

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 from international capital mobility. The paper is motivated by an analysis of European capital income tax systems, and of the distortions they might give rise to as obstacles to international capital flows diminish. The alternative system we analyze has two main properties: it exploits the territoriality of law enforcement, and allows countries to set the corporate tax rate - and the extent of double taxation of corporate income - independently from their partners. The paper concludes with some suggestive evidence of the potential revenue effects among European countries of this tax system.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 3333.

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Date of creation: Apr 1990
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Publication status: published as European Financial Integration, A. Giovannini and C. Mayer, eds., Cambridge: Cambridge University Press, 1991., p. 172-210
Handle: RePEc:nbr:nberwo:3333

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  1. Jane G. Gravelle & Laurence J. Kotlikoff, 1987. "The Incidence and Efficiency Costs of Corporate Taxation when Corporate and Noncorporate Firms Produce the Same Good," NBER Working Papers 2462, National Bureau of Economic Research, Inc.
  2. Eichengreen, Barry, 1989. "The Capital Levy in Theory and Practice," CEPR Discussion Papers 350, C.E.P.R. Discussion Papers.
  3. Alan J. Auerbach & James M. Poterba, 1987. "Why Have Corporate Tax Revenues Declined?," NBER Chapters, in: Tax Policy and the Economy, Volume 1, pages 1-28 National Bureau of Economic Research, Inc.
  4. Sinn, Hans-Werner, 1991. "The vanishing harberger triangle," Munich Reprints in Economics 19842, University of Munich, Department of Economics.
  5. 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.
  6. Alan J. Auerbach, 1980. "Share Valuation and Corporate Equity Policy," NBER Working Papers 0255, National Bureau of Economic Research, Inc.
  7. Razin, Assaf & Sadka, Efraim, 1991. "International tax competition and gains from tax harmonization," Economics Letters, Elsevier, vol. 37(1), pages 69-76, September.
  8. Alan J. Auerbach & James R. Hines Jr., 1988. "Investment Tax Incentives and Frequent Tax Reforms," NBER Working Papers 2492, National Bureau of Economic Research, Inc.
  9. 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.
  10. 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.
  11. 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.
  12. Takeo Hoshi & Anil Kashyap & David Scharfstein, 1989. "Corporate structure, liquidity, and investment: evidence from Japanese industrial groups," Finance and Economics Discussion Series 82, Board of Governors of the Federal Reserve System (U.S.).
  13. Feldstein, Martin S, 1976. "Personal Taxation and Portfolio Composition: An Econometric Analysis," Econometrica, Econometric Society, vol. 44(4), pages 631-50, July.
  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. 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.
  16. Hines, James Jr., 1994. "Credit and deferral as international investment incentives," Journal of Public Economics, Elsevier, vol. 55(2), pages 323-347, October.
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Cited by:
  1. 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.
  2. Marcel Gérard, 2002. "Tax Competition, the Distribution of MNE's Ownership and the Wage Formation Process," CESifo Working Paper Series 631, CESifo Group Munich.
  3. Libman, Alexander, 2005. "Взаимодействие Государственных И Частных Структур В Интеграционных Группировах: Теоретические Подходы И Оп," MPRA Paper 17044, University Library of Munich, Germany.
  4. Torsten Persson & Guido Tabellini, 1990. "The Politics of 1992: Fiscal Policy and European Integration," NBER Working Papers 3460, National Bureau of Economic Research, Inc.
  5. Roger H. Gordon, 1990. "Canada - U.S. Free Trade and Pressures for Tax Harmonization," NBER Working Papers 3327, National Bureau of Economic Research, Inc.
  6. Hines, J.R., 1990. "The Transfer Pricing Problem: Where The Profit Are," Papers 64, Princeton, Woodrow Wilson School - Discussion Paper.
  7. Roger H. Gordon, 1990. "Can Capital Income Taxes Survive in Open Economies?," NBER Working Papers 3416, National Bureau of Economic Research, Inc.
  8. 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.
  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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