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Notes on cash - flow taxation

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  • Gordon, Roger H.

Abstract

Under cash-flow taxation, a country can tax the cash flow of domestic producers, domestic residents, or domestic citizens. The implications are different in each case. The paper examines the positive and normative effects of various versions of a cash-flow tax, focusing on the effects of such a tax in a small open economy. A country must decide, for example, whether investment in each type of asset will be taxed based on its cash flow or will instead be entirely tax exempt. The economic implications differ, depending on whether the government decides or the choice may be left to each tax payer. In addition tax flow rates may vary: as a result of a progressive rate schedule; according to the type of tax payer; or over time, depending on economic conditions. Substantial problems can result from each type of variation. Finally, inequities can arise during the transition to a cash-flow tax. Different inequities arise depending on what tax precedes the cash-flow tax. And a partial introduction of cash-flow taxation may open important arbitrage opportunities.

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Bibliographic Info

Paper provided by The World Bank in its series Policy Research Working Paper Series with number 210.

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Date of creation: 30 Jun 1989
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Handle: RePEc:wbk:wbrwps:210

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Keywords: Banks&Banking Reform; International Terrorism&Counterterrorism; Public Sector Economics&Finance; Environmental Economics&Policies; Economic Theory&Research;

References

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  1. 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.
  2. Doyle, Christopher & van Wijnbergen, Sweder, 1984. "Taxation of Foreign Multinationals: A Sequential Bargaining Approach to Tax Holidays," CEPR Discussion Papers, C.E.P.R. Discussion Papers 25, C.E.P.R. Discussion Papers.
  3. Roger H. Gordon, 1981. "Taxation of Corporate Capital Income: Tax Revenues vs. Tax Distortions," NBER Working Papers 0687, National Bureau of Economic Research, Inc.
  4. McGuire, Martin, 1974. "Group Segregation and Optimal Jurisdictions," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 82(1), pages 112-32, Jan.-Feb..
  5. Feldstein, Martin & Hartman, David, 1979. "The Optimal Taxation of Foreign," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 93(4), pages 613-29, November.
  6. Judd, Kenneth L, 1987. "The Welfare Cost of Factor Taxation in a Perfect-Foresight Model," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 95(4), pages 675-709, August.
  7. Fullerton, Don & Shoven, John B. & Whalley, John, 1983. "Replacing the U.S. income tax with a progressive consumption tax : A sequenced general equilibrium approach," Journal of Public Economics, Elsevier, Elsevier, vol. 20(1), pages 3-23, February.
  8. Roger H. Gordon & Joel Slemrod, 1988. "Do We Collect Any Revenue from Taxing Capital Income?," NBER Chapters, National Bureau of Economic Research, Inc, in: Tax Policy and the Economy: Volume 2, pages 89-130 National Bureau of Economic Research, Inc.
  9. David G. Hartman, 1981. "Tax Policy and Foreign Direct Investment," NBER Working Papers 0689, National Bureau of Economic Research, Inc.
  10. Diamond, Peter A & Mirrlees, James A, 1971. "Optimal Taxation and Public Production: I--Production Efficiency," American Economic Review, American Economic Association, American Economic Association, vol. 61(1), pages 8-27, March.
  11. Sandmo, Agnar, 1974. "A Note on the Structure of Optimal Taxation," American Economic Review, American Economic Association, American Economic Association, vol. 64(4), pages 701-06, September.
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