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Taxation if Capital is Not Perfectly Mobile: Tax Competition versus Tax Exportation

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  • Eijffinger, S.C.W.

    (Tilburg University)

  • Wagner, W.B.

    (Tilburg University)

Abstract

This paper analyzes the tax competition and tax exporting effect of financial integration. On the one hand, financial integration increases capital mobility and thus the incentive for countries to compete for capital. On the other hand, financial integration increases foreign ownership of firms and capital and allows for exportation of source taxes. Both effects have contrary implications for capital taxes. Allowing for imperfectly mobile capital, our analysis suggests that currently the tax exportation effect is dominating, which implies excessive capital taxation. From studying the benchmark of full financial integration we find that capital taxes are likely to increase from current levels. We further examine the tax exportation effect empirically and find that is significant as well as quantitatively important for the U.S.

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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:12-88263.

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Length: 25
Date of creation: 2001
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Handle: RePEc:ner:tilbur:urn:nbn:nl:ui:12-88263

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

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References

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  1. Assaf Razin & Efraim Sadka, 1989. "International Tax Competition and Gains from Tax Harmonization," NBER Working Papers 3152, National Bureau of Economic Research, Inc.
  2. Eckhard Janeba, 2000. "Tax Competition When Governments Lack Commitment: Excess Capacity as a Countervailing Threat," American Economic Review, American Economic Association, American Economic Association, vol. 90(5), pages 1508-1519, December.
  3. Huizinga, H.P. & Nielsen, S.B., 1997. "Capital income and profit taxation with foreign ownership of firms," Open Access publications from Tilburg University, Tilburg University urn:nbn:nl:ui:12-73857, Tilburg University.
  4. Mihir A. Desai & James R. Hines Jr., 2001. "Foreign Direct Investment in a World of Multiple Taxes," NBER Working Papers 8440, National Bureau of Economic Research, Inc.
  5. Swenson, Deborah L., 1994. "The impact of U.S. tax reform on foreign direct investment in the United States," Journal of Public Economics, Elsevier, Elsevier, vol. 54(2), pages 243-266, June.
  6. Hines, James R. Jr., 1999. "Lessons from Behavioral Responses to International Taxation," National Tax Journal, National Tax Association, vol. 52(n. 2), pages 305-22, June.
  7. Lee, Kangoh, 1997. "Tax Competition with Imperfectly Mobile Capital," Journal of Urban Economics, Elsevier, vol. 42(2), pages 222-242, September.
  8. Peter Birch Sørensen, . "International Tax Coordination: Regionalism versus Globalism," EPRU Working Paper Series, Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics 01-08, Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics.
  9. Peter Birch Sørensen, 2001. "International Tax Coordination: Regionalism Versus Globalism," CESifo Working Paper Series 483, CESifo Group Munich.
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Cited by:
  1. Wolf Wagner, 2007. "International Risk Sharing and Government Moral Hazard," Open Economies Review, Springer, Springer, vol. 18(5), pages 577-598, November.
  2. Signe Krogstrup, 2004. "Are Corporate Tax Burdens Racing to the Bottom in the European Union?," EPRU Working Paper Series, Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics 04-04, Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics.
  3. Leon Bettendorf & Joeri Gorter & Albert van der Horst, 2006. "Who benefits from tax competition in the European Union?," CPB Document, CPB Netherlands Bureau for Economic Policy Analysis 125, CPB Netherlands Bureau for Economic Policy Analysis.
  4. Wagner, W.B., 2007. "International risk sharing and government moral hazard," Open Access publications from Tilburg University, Tilburg University urn:nbn:nl:ui:12-193952, Tilburg University.
  5. Huizinga, Harry & Nicodeme, Gaetan, 2006. "Foreign ownership and corporate income taxation: An empirical evaluation," European Economic Review, Elsevier, Elsevier, vol. 50(5), pages 1223-1244, July.

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