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Tariff jumping foreign investment and capital taxation

  • Dehejia, Vivek H.
  • Weichenrieder, Alfons J.

This paper reconsiders the welfare effects of "tariff jumping" direct investment if mobile capital is subjected to taxation. In contrast to the conventional wisdom, the receiving country may in this case gain from the incremental inflow of capital, as this diverts tax revenues from the rest of the world. In the case of perfect capital mobility, this possibility becomes a certainty. Our argument provides one rationale for a small country to levy a distorting tariff in a second best world in which capital taxes already exist.

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Article provided by Elsevier in its journal Journal of International Economics.

Volume (Year): 53 (2001)
Issue (Month): 1 (February)
Pages: 223-230

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Handle: RePEc:eee:inecon:v:53:y:2001:i:1:p:223-230
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/505552

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  1. G. D. A. MacDougall, 1960. "THE BENEFITS and COSTS OF PRIVATE INVESTMENT FROM ABROAD: A THEORETICAL APPROACH," The Economic Record, The Economic Society of Australia, vol. 36(73), pages 13-35, 03.
  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. Assaf Razin & Efraim Sadka, 1991. "Vanishing Tax on Capital Income in the Open Economy," NBER Working Papers 3796, National Bureau of Economic Research, Inc.
  4. Bhagwati, Jagdish N & Dinopoulos, Elias & Wong, Kar-yiu, 1992. "Quid Pro Quo Foreign Investment," American Economic Review, American Economic Association, vol. 82(2), pages 186-90, May.
  5. Roger H. Gordon, 1990. "Can Capital Income Taxes Survive in Open Economies?," NBER Working Papers 3416, National Bureau of Economic Research, Inc.
  6. repec:ner:tilbur:urn:nbn:nl:ui:12-73857 is not listed on IDEAS
  7. Ruffin, Roy J., 1984. "International factor movements," Handbook of International Economics, in: R. W. Jones & P. B. Kenen (ed.), Handbook of International Economics, edition 1, volume 1, chapter 5, pages 237-288 Elsevier.
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