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Taxation and Integrated Financial Markets: The Challenges of Derivatives and Other Financial Innovations

  • Julian Alworth
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    The past decade has witnessed the explosive growth of a multiplicity of new instruments which have altered the financial landscape. These transactions have highlighted many of the inconsistencies, asymmetries and shortcomings of current tax practices and challenged some basic tax principles. The ensuing uncertainties could over the long term place considerable strain on the tax system by increasing the opportunities for abuse and raising overall compliance costs. At the same time derivatives have provided a better understanding of the operation tax laws and from this standpoint have provided a positive input into policy design. This paper has three objectives: (a) to illustrate some of the weaknesses of the current tax system by focusing on several types of novel transaction; (b) to assess the validity of various types of adjustment proposed to tax code; (c) to draw out the implications of these developments for the ongoing debate over fundamental tax reforms and over source versus residence based taxes. Copyright Kluwer Academic Publishers 1998

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    File URL: http://hdl.handle.net/10.1023/A:1008650823569
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    Article provided by Springer in its journal International Tax and Public Finance.

    Volume (Year): 5 (1998)
    Issue (Month): 4 (October)
    Pages: 507-534

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    Handle: RePEc:kap:itaxpf:v:5:y:1998:i:4:p:507-534
    Contact details of provider: Web page: http://www.springerlink.com/link.asp?id=102915

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    1. repec:ner:tilbur:urn:nbn:nl:ui:12-73030 is not listed on IDEAS
    2. Huizinga, H., 1994. "The Incidence of Interest Withholding Taxes: Evidence from the LCD Loan Market," Papers 9495, Tilburg - Center for Economic Research.
    3. Huizinga, H.P., 1994. "International interest withholding taxation : Prospects for a common European policy," Other publications TiSEM 3d92ccee-19e6-4a36-8a00-3, School of Economics and Management.
    4. Miller, Merton H., 1986. "Financial Innovation: The Last Twenty Years and the Next," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 21(04), pages 459-471, December.
    5. Gordon, Roger H, 1992. " Can Capital Income Taxes Survive in Open Economies?," Journal of Finance, American Finance Association, vol. 47(3), pages 1159-80, July.
    6. Huizinga, H.P., 1994. "The incidence of interest withholding taxes : Evidence from the LDC loan markets," Discussion Paper 1994-95, Tilburg University, Center for Economic Research.
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    8. Auerbach, Alan J, 1991. "Retrospective Capital Gains Taxation," American Economic Review, American Economic Association, vol. 81(1), pages 167-78, March.
    9. David F. Bradford, 1996. "Fixing Capital Gains: Symmetry, Consistency and Correctness in the Taxation of Financial Instruments," NBER Working Papers 5754, National Bureau of Economic Research, Inc.
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    11. William Vickrey, 1939. "Averaging of Income for Income-Tax Purposes," Journal of Political Economy, University of Chicago Press, vol. 47, pages 379.
    12. Ross, Stephen A, 1987. "Arbitrage and Martingales with Taxation," Journal of Political Economy, University of Chicago Press, vol. 95(2), pages 371-93, April.
    13. Jack M. Mintz, 1992. "Is There a Future for Capital Income Taxation?," OECD Economics Department Working Papers 108, OECD Publishing.
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