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Evaluating International Tax Reform

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  • Desai, Mihir A.
  • Hines, James R. Jr.

Abstract

This paper introduces "capital ownership neutrality" (CON) and "national ownership neutrality" (NON) as benchmarks for evaluating the desirability of international tax reforms, and applies them to analyze recent U.S. tax reform proposals. Tax systems satisfy CON if they do not distort the ownership of capital assets, which promotes global efficiency whenever the productivity of an investment differs based on its ownership. A regime in which all countries exempt foreign income from taxation satisfies CON, as does a regime in which all countries tax foreign income while providing foreign tax credits. Tax systems satisfy NON if they promote the profitability of domestic firms, and therefore home country welfare, by exempting foreign income from taxation. Standard normative benchmarks of capital export neutrality, national neutrality, and capital import neutrality carry very different implications, since they fail to account for the productivity effects of tax-induced changes in capital ownership. Proposed U.S. tax reforms that reduce the taxation of foreign income, thereby bringing the U.S. tax system more in line with the systems of other countries, have the potential to advance both American interests and global welfare.

Suggested Citation

  • Desai, Mihir A. & Hines, James R. Jr., 2003. "Evaluating International Tax Reform," National Tax Journal, National Tax Association, vol. 56(3), pages 487-502, September.
  • Handle: RePEc:ntj:journl:v:56:y:2003:i:3:p:487-502
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    References listed on IDEAS

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    1. Devereux, Michael P & Hubbard, R Glenn, 2003. "Taxing Multinationals," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 10(4), pages 469-487, August.
    2. Altshuler, Rosanne & Grubert, Harry, 2003. "Repatriation taxes, repatriation strategies and multinational financial policy," Journal of Public Economics, Elsevier, vol. 87(1), pages 73-107, January.
    3. Slemrod, Joel & Hansen, Carl & Procter, Roger, 1997. "The seesaw principle in international tax policy," Journal of Public Economics, Elsevier, vol. 65(2), pages 163-176, August.
    4. James R. Hines & Eric M. Rice, 1994. "Fiscal Paradise: Foreign Tax Havens and American Business," The Quarterly Journal of Economics, Oxford University Press, vol. 109(1), pages 149-182.
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