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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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File URL: http://economics.uoregon.edu/papers/UO-2002-7_Davies_Two_Way_Capital_Flows.pdf
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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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Find related papers by JEL classification:
F20 - International Economics - - International Factor Movements and International Business - - - General
H87 - Public Economics - - Miscellaneous Issues - - - International Fiscal Issues; International Public Goods

References listed on IDEAS
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  2. Gordon, Roger H, 1992. " Can Capital Income Taxes Survive in Open Economies?," Journal of Finance, American Finance Association, vol. 47(3), pages 1159-80, July. [Downloadable!] (restricted)
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  3. Bond, E.W. & Samuelson, L., 1988. "Strategic Behavior And The Rules For International Taxation Of Capital," Papers 3-88-10, Pennsylvania State - Department of Economics.
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  4. Markusen, James R., 1984. "Multinationals, multi-plant economies, and the gains from trade," Journal of International Economics, Elsevier, vol. 16(3-4), pages 205-226, May. [Downloadable!] (restricted)
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  9. Slemrod, Joel & Hansen, Carl & Procter, Roger, 1997. "The seesaw principle in international tax policy," Journal of Public Economics, Elsevier, vol. 65(2), pages 163-176, August. [Downloadable!] (restricted)
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  10. Hines, James R, Jr, 1996. "Altered States: Taxes and the Location of Foreign Direct Investment in America," American Economic Review, American Economic Association, vol. 86(5), pages 1076-94, December. [Downloadable!] (restricted)
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  11. Yang, Yong, 1996. "Tax competition under the threat of capital flight," Economics Letters, Elsevier, vol. 53(3), pages 323-329, December. [Downloadable!] (restricted)
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  14. James R. Hines, Jr. & R. Glenn Hubbard, 1990. "Coming Home to America: Dividend Repatriations by U.S. Multinationals," NBER Working Papers 2931, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  15. Mintz, Jack & Tulkens, Henry, 1996. "Optimality properties of alternative systems of taxation of foreign capital income," Journal of Public Economics, Elsevier, vol. 60(3), pages 373-399, June. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Michael Devereux & R. Hubbard, 2003. "Taxing Multinationals," Asia-Pacific Financial Markets, Springer, vol. 10(4), pages 469-487, August. [Downloadable!] (restricted)
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  2. Bruce Blonigen & Ronald Davies, 2004. "The Effects of Bilateral Tax Treaties on U.S. FDI Activity," Asia-Pacific Financial Markets, Springer, vol. 11(5), pages 601-622, September. [Downloadable!] (restricted)
    Other versions:
  3. Thomas Dickescheid, 2004. "Exemption vs. Credit Method in International Double Taxation Treaties," Asia-Pacific Financial Markets, Springer, vol. 11(6), pages 721-739, November. [Downloadable!] (restricted)
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