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Capital income and profit taxation with foreign ownership of firms

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  • Huizinga, H.P.

    (Tilburg University)

  • Nielsen, S.B.

Abstract

This paper establishes in the simplest possible way optimal rules for capital income and profits taxation in the open economy with or without foreign ownership of doemstic firms. We show that if there are constraints on the feasibility of profits taxation, both saving and investment taxes generally enter the optimal tax package. If instead profits can be fully taxed, then source-based investment taxes vanish. If domestic firms are in part owned by foreigners, then source-based investment taxes can be used to shift income away from these to domestic citizens and they may even be used to finance lump sum transfers to domestic residents.

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Bibliographic Info

Paper provided by Tilburg University in its series Open Access publications from Tilburg University with number urn:nbn:nl:ui:12-73857.

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Date of creation: 1997
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Publication status: Published in Journal of International Economics (1997) v.42, p.149-165
Handle: RePEc:ner:tilbur:urn:nbn:nl:ui:12-73857

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Web page: http://www.tilburguniversity.edu/

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  1. Roger H. Gordon & Jeffrey K. MacKie-Mason, 1994. "Why Is There Corporate Taxation In a Small Open Economy? The Role of Transfer Pricing and Income Shifting," NBER Working Papers 4690, National Bureau of Economic Research, Inc.
  2. Bruce, N., 1992. "Why Are There Foreign Tax Credits," Discussion Papers in Economics at the University of Washington, Department of Economics at the University of Washington 92-08, Department of Economics at the University of Washington.
  3. 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.
  4. Diamond, Peter A & Mirrlees, James A, 1971. "Optimal Taxation and Public Production II: Tax Rules," American Economic Review, American Economic Association, American Economic Association, vol. 61(3), pages 261-78, June.
  5. Huizinga, H.P., 1995. "The optimal taxation of savings and investment in an open economy," Open Access publications from Tilburg University, Tilburg University urn:nbn:nl:ui:12-155150, Tilburg University.
  6. MINTZ, Jacques & TULKENS , Henry, 1994. "Optimality Properties of Alternative Systems of Taxation of Foreign Capital Income," CORE Discussion Papers, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) 1994078, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  7. Gordon, Roger H, 1986. "Taxation of Investment and Savings in a World Economy," American Economic Review, American Economic Association, American Economic Association, vol. 76(5), pages 1086-1102, December.
  8. Dasgupta, Partha & Stiglitz, Joseph E, 1972. "On Optimal Taxation and Public Production," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 39(1), pages 87-103, January.
  9. Bruce, Neil, 1992. "A Note on the Taxation of International Capital Income Flows," The Economic Record, The Economic Society of Australia, The Economic Society of Australia, vol. 68(202), pages 217-21, September.
  10. Frenkel, Jacob & Razin, Assaf & Sadka, Efraim, 1992. "International taxation in an integrated world," MPRA Paper 23266, University Library of Munich, Germany.
  11. Joseph E. Stiglitz & Partha Dasgupta, 1970. "Differential Taxation, Public Goods, and Economic Efficiency," Cowles Foundation Discussion Papers, Cowles Foundation for Research in Economics, Yale University 299, Cowles Foundation for Research in Economics, Yale University.
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