Tariff jumping foreign investment and capital taxation
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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- Assaf Razin & Efraim Sadka, 1991. "Vanishing Tax on Capital Income in the Open Economy," NBER Working Papers 3796, National Bureau of Economic Research, Inc. Full references (including those not matched with items on IDEAS)
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