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Pareto-Efficient International Taxation

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  • Michael Keen
  • David Wildasin

Abstract

This paper analyzes Pareto-efficient international tax regimes. Because every country faces its own national budget constraint, the Diamond-Mirrlees production-efficiency theorem, which underlies key tenets of policy advice in international taxation - the desirability of destination basis for commodity taxation, of the residence principle for capital income taxation, and of free trade - does not apply. The paper establishes conditions - relating to the availability of explicit or implicit devices for reallocating tax revenues across countries - under which production efficiency is nevertheless desirable, and characterizes the precise ways in which Pareto-efficient international taxation may require violation of established tenets.

Suggested Citation

  • Michael Keen & David Wildasin, 2004. "Pareto-Efficient International Taxation," American Economic Review, American Economic Association, vol. 94(1), pages 259-275, March.
  • Handle: RePEc:aea:aecrev:v:94:y:2004:i:1:p:259-275
    Note: DOI: 10.1257/000282804322970797
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    References listed on IDEAS

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