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The OECD Model Tax Treaty: Tax Competition and Two-Way Capital

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Author Info
Ronald B. Davies () (University of Oregon Economics Department)

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Abstract

Model tax treaties do not require tax rate coordination, but do call for either credits or exemptions when calculating a multinational’s domestic taxes. This contradicts recent models with a single capital exporter where deductions are most efficient. I incorporate the fact that many nations import and export capital. With symmetric countries, credits by both is the only treaty equilibrium, resulting in Pareto optimal effective tax rates which weakly dominate the non-treaty equilibrium rates. With asymmetric countries, the treaty need not offer improvements without tax harmonization. With harmonization, it is always possible to reach efficient capital allocations while increasing both countries’ welfares only if neither uses deductions.

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Paper provided by University of Oregon Economics Department in its series University of Oregon Economics Department Working Papers with number 2002-7.

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Length: 40
Date of creation: 01 Oct 1999
Date of revision: 01 Jan 2002
Handle: RePEc:ore:uoecwp:2002-7

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F20 - International Economics - - International Factor Movements and International Business - - - General
H87 - Public Economics - - Miscellaneous Issues - - - International Fiscal Issues; International Public Goods

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