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Must losing taxes on saving be harmful?

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  • Huizinga, Harry
  • Nielsen, Søren Bo

Abstract

Internationalization offers enhanced opportunities for individuals to place savings abroad and evade domestic saving taxation. This paper asks whether the concomitant loss of saving taxation necessarily is harmful. To this end we construct a model of many symmetric countries in which public goods are financed by taxes on saving and investment. There is international cross-ownership of firms, and countries are assumed to be unable to tax away pure profits. Countries then face an incentive to impose a rather high investment tax also borne by foreigners. In this setting, the loss of the saving tax instrument on account of international tax evasion may prevent the overall saving-investment tax wedge from becoming too high, and hence may be beneficial for moderate preferences for public goods.

Suggested Citation

  • Huizinga, Harry & Nielsen, Søren Bo, 2008. "Must losing taxes on saving be harmful?," Journal of Public Economics, Elsevier, vol. 92(5-6), pages 1183-1192, June.
  • Handle: RePEc:eee:pubeco:v:92:y:2008:i:5-6:p:1183-1192
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    References listed on IDEAS

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    1. Bucovetsky, S., 1991. "Asymmetric tax competition," Journal of Urban Economics, Elsevier, vol. 30(2), pages 167-181, September.
    2. Michael Keen & Jenny Ligthart, 2006. "Incentives and Information Exchange in International Taxation," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 13(2), pages 163-180, May.
    3. Huizinga, Harry & Nielsen, Soren Bo, 1997. "Capital income and profit taxation with foreign ownership of firms," Journal of International Economics, Elsevier, pages 149-165.
    4. Razin, Assaf & Sadka, Efraim, 1991. "International tax competition and gains from tax harmonization," Economics Letters, Elsevier, vol. 37(1), pages 69-76, September.
    5. Huizinga, Harry & Nielsen, Soren Bo, 2003. "Withholding taxes or information exchange: the taxation of international interest flows," Journal of Public Economics, Elsevier, pages 39-72.
    6. Mintz, Jack & Tulkens, Henry, 1996. "Optimality properties of alternative systems of taxation of foreign capital income," Journal of Public Economics, Elsevier, pages 373-399.
    7. Huizinga, Harry & Nielsen, Soren Bo, 2002. "The coordination of capital income and profit taxation with cross-ownership of firms," Regional Science and Urban Economics, Elsevier, pages 1-26.
    8. Huizinga, Harry & Nielsen, Soren Bo, 2003. "Withholding taxes or information exchange: the taxation of international interest flows," Journal of Public Economics, Elsevier, pages 39-72.
    9. Sijbren Cnossen, 1996. "Company Taxes in the European Union: Criteria and Options for Reform," Fiscal Studies, Institute for Fiscal Studies, pages 67-97.
    10. Bucovetsky, Sam & Wilson, John Douglas, 1991. "Tax competition with two tax instruments," Regional Science and Urban Economics, Elsevier, vol. 21(3), pages 333-350, November.
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    13. Gordon, Roger H, 1986. "Taxation of Investment and Savings in a World Economy," American Economic Review, American Economic Association, vol. 76(5), pages 1086-1102, December.
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    15. Michael Keen, 1993. "The welfare economics of tax co-ordination in the European Community : a survey," Fiscal Studies, Institute for Fiscal Studies, pages 15-36.
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    18. Klein Paul & Quadrini Vincenzo & Rios-Rull Jose-Victor, 2005. "Optimal Time-Consistent Taxation with International Mobility Of Capital," The B.E. Journal of Macroeconomics, De Gruyter, vol. 5(1), pages 1-36, June.
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    Cited by:

    1. Akira Yakita, 2014. "Effects of capital taxation on economies with different demographic changes: short term versus long term," Journal of Population Economics, Springer;European Society for Population Economics, vol. 27(1), pages 257-273, January.
    2. Michael Keen & Kai A. Konrad, 2012. "International Tax Competition and Coordination," Working Papers international_tax_competi, Max Planck Institute for Tax Law and Public Finance.

    More about this item

    JEL classification:

    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H87 - Public Economics - - Miscellaneous Issues - - - International Fiscal Issues; International Public Goods

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