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Pareto-Efficient International Taxation

  • Michael Keen
  • David Wildasin

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.

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File URL: http://www.aeaweb.org/articles.php?doi=10.1257/000282804322970797
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Article provided by American Economic Association in its journal American Economic Review.

Volume (Year): 94 (2004)
Issue (Month): 1 (March)
Pages: 259-275

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Handle: RePEc:aea:aecrev:v:94:y:2004:i:1:p:259-275
Note: DOI: 10.1257/000282804322970797
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  1. Lockwood, Ben, 1992. "Commodity Tax Competition Under Destination and Origin Principles," CEPR Discussion Papers 733, C.E.P.R. Discussion Papers.
  2. Harry Huizinga & Soeren Bo Nielsen, . "Capital Income and Profits Taxation with Foreign Ownerwhip of Firms," EPRU Working Paper Series 95-09, Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics.
  3. Keen, Michael & Lahiri, Sajal, 1994. "The Comparison Between Destination and Origin Principles Under Imperfect Competition," Economics Discussion Papers 10023, University of Essex, Department of Economics.
  4. Keen, Michael & Piekkola, Hannu, 1997. " Simple Rules for the Optimal Taxation of International Capital Income," Scandinavian Journal of Economics, Wiley Blackwell, vol. 99(3), pages 447-61, September.
  5. James R. Hines Jr., 2000. "Tax Sparing and Direct Investment in Developing Countries," NBER Chapters, in: International Taxation and Multinational Activity, pages 39-72 National Bureau of Economic Research, Inc.
  6. Auerbach, Alan J., 1985. "The theory of excess burden and optimal taxation," Handbook of Public Economics, in: A. J. Auerbach & M. Feldstein (ed.), Handbook of Public Economics, edition 1, volume 1, chapter 2, pages 61-127 Elsevier.
  7. Stefan Homburg, 1999. "Competition and Co-ordination in International Capital Income Taxation," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 56(1), pages 1-17, March.
  8. Harris, Richard G., 1979. "Efficient commodity taxation," Journal of Public Economics, Elsevier, vol. 12(1), pages 27-39, August.
  9. Kotsogiannis, Christos & Makris, Miltiadis, 2002. "On production efficiency in federal systems," Economics Letters, Elsevier, vol. 76(2), pages 281-287, July.
  10. Arja H. Turunen-Red & Alan D. Woodland, 1996. "Recent Developments in Multilateral Policy Reform," Canadian Journal of Economics, Canadian Economics Association, vol. 29(s1), pages 394-400, April.
  11. Joseph E. Stiglitz, 1981. "Self-Selection and Pareto Efficient Taxation," NBER Working Papers 0632, National Bureau of Economic Research, Inc.
  12. J. A. Mirrlees, 1972. "On Producer Taxation," Review of Economic Studies, Oxford University Press, vol. 39(1), pages 105-111.
  13. Ebrill, Liam P. & Slutsky, Steven M., 1989. "Decentralized decision making with common goals : The a[right ceiling]truists' dilemma and regulatory pricing," European Journal of Political Economy, Elsevier, vol. 5(2-3), pages 177-201.
  14. Peter A. Diamond & J. A. Mirrlees, 1968. "Optimal Taxation and Public Production," Working papers 22, Massachusetts Institute of Technology (MIT), Department of Economics.
  15. Partha Dasgupta & Joseph Stiglitz, 1972. "On Optimal Taxation and Public Production," Review of Economic Studies, Oxford University Press, vol. 39(1), pages 87-103.
  16. Devarajan, Shantayanan & Go, Delfin & Schiff, Maurice & Suthiwart-Narueput, Sethaput, 1996. "The whys and why nots of export taxation," Policy Research Working Paper Series 1684, The World Bank.
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