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The economic distortions of a border-adjusted corporate cash flow tax

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  • McGee, M Kevin

Abstract

This paper explores the efficiency distortions under two types of destination-based corporate cash-flow taxes. Auerbach and Devereux (2015) have shown that a sales-apportioned cash-flow tax will distort consumer prices; this paper shows that those distortions are generally quite small, and are limited solely to industries in which economic profits are earned, and consump- tion is already significantly distorted. This paper also shows that a border-adjusted cash-flow tax will distort consumption decisions that cross borders, such as travel, higher education, and retirement location. In addition, it would affect labor migration decisions, especially for mi- grants who plan either to migrate only temporarily, or to remit a substantial fraction of their earning back to their home country.

Suggested Citation

  • McGee, M Kevin, 2017. "The economic distortions of a border-adjusted corporate cash flow tax," MPRA Paper 79275, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:79275
    as

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    File URL: https://mpra.ub.uni-muenchen.de/79275/1/MPRA_paper_79275.pdf
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    References listed on IDEAS

    as
    1. Devereux, Michael & Bond, Stephen Roy, 2002. "Cash Flow Taxes in an Open Economy," CEPR Discussion Papers 3401, C.E.P.R. Discussion Papers.
    2. Thomas Eichner & Marco Runkel, 2008. "Why the European Union Should Adopt Formula Apportionment with a Sales Factor," Scandinavian Journal of Economics, Wiley Blackwell, vol. 110(3), pages 567-589, September.
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    More about this item

    Keywords

    International Corporate Taxation; Cash Flow Tax; Destination-Based Cash Flow Tax; Formula Apportionment;
    All these keywords.

    JEL classification:

    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • H31 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Household
    • H32 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Firm

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