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Must losing taxes on saving be harmful?

  • Huizinga, Harry
  • Nielsen, Søren Bo

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.

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

Volume (Year): 92 (2008)
Issue (Month): 5-6 (June)
Pages: 1183-1192

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Handle: RePEc:eee:pubeco:v:92:y:2008:i:5-6:p:1183-1192
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/505578

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  1. Huizinga, H.P. & Nielsen, S.B., 1996. "The Coordination of Capital Income and Profit Taxation with Cross-Ownership of Firms," Discussion Paper 1996-104, Tilburg University, Center for Economic Research.
  2. Enrique G. Mendoza & Linda L. Tesar, 2003. "A Quantitative Analysis of Tax Competition v. Tax Coordination under Perfect Capital Mobility," NBER Working Papers 9746, National Bureau of Economic Research, Inc.
  3. Michael Keen, 1993. "The welfare economics of tax co-ordination in the European Community : a survey," Fiscal Studies, Institute for Fiscal Studies, vol. 14(2), pages 15-36, February.
  4. Huizinga, Harry & Nielsen, Soren Bo, 1997. "Capital income and profit taxation with foreign ownership of firms," Journal of International Economics, Elsevier, vol. 42(1-2), pages 149-165, February.
  5. repec:cup:cbooks:9780521782760 is not listed on IDEAS
  6. Harry Huizinga & Søren Bo Nielsen, . "Withholding Taxes or Information Exchange: The Taxation of International Interest Flows," EPRU Working Paper Series 00-19, Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics.
  7. Michael Keen & Jenny Ligthart, 2006. "Incentives and Information Exchange in International Taxation," International Tax and Public Finance, Springer, vol. 13(2), pages 163-180, May.
  8. Bucovetsky, S., 1991. "Asymmetric tax competition," Journal of Urban Economics, Elsevier, vol. 30(2), pages 167-181, September.
  9. Mintz, J. & Tulkens, H., . "Optimality properties of alternative systems of taxation of foreign capital income," CORE Discussion Papers RP -1212, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  10. Razin, Assaf & Sadka, Efraim, 1991. "International tax competition and gains from tax harmonization," Economics Letters, Elsevier, vol. 37(1), pages 69-76, September.
  11. 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.
  12. Wilson, John Douglas, 1999. "Theories of Tax Competition," National Tax Journal, National Tax Association, vol. 52(n. 2), pages 269-304, June.
  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.
  14. Sijbren Cnossen, 1996. "Company Taxes in the European Union: Criteria and Options for Reform," Fiscal Studies, Institute for Fiscal Studies, vol. 17(4), pages 67-97, November.
  15. 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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