IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this book chapter or follow this series

International taxation

In: Handbook of Public Economics

  • Gordon, Roger H.
  • Hines, James Jr

The integration of world capital markets carries important implications for the design and impact of tax policies. This paper evaluates research findings on international taxation, drawing attention to connections and inconsistencies between theoretical and empirical observations.Diamond and Mirrlees, 1971a and Diamond and Mirrlees, 1971b note that small open economies incur very high costs in attempting to tax the returns to local capital investment, since local factors bear the burden of such taxes in the form of productive inefficiencies. Richman (1963) argues that countries may simultaneously want to tax the worldwide capital income of domestic residents, implying that any taxes paid to foreign governments should be merely deductible from domestic taxable income.Governments do not adopt policies that are consistent with these forecasts. Corporate income is taxed at high rates by wealthy countries, and most countries either exempt foreign-source income of domestic multinationals from tax, or else provide credits rather than deductions for taxes paid abroad. Furthermore, individual investors can use various methods to avoid domestic taxes on their foreign-source incomes, in the process avoiding taxes on their domestic-source incomes.Individual and firm behavior also differs from that forecast by simple theories. Observed portfolios are not fully diversified worldwide. Foreign direct investment is common even when it faces tax penalties relative to other investment in host countries. While economic activity is highly responsive to tax rates and tax structure, there are many aspects of behavior that are difficult to reconcile with simple microeconomic incentives.There are promising recent efforts to reconcile observations with theory. To the extent that multinational firms possess intangible capital on which they earn returns with foreign direct investment, even small countries may have a degree of market power, leading to fiscal externalities. Tax avoidance is pervasive, generating further fiscal externalities. These concepts are useful in explaining behavior, and observed tax policies, and they also suggest that international agreements have the potential to improve the efficiency of tax systems worldwide.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://www.sciencedirect.com/science/article/B7P63-4FFPH82-7/2/7199bb41597511f192906410c0c325d3
Download Restriction: Full text for ScienceDirect subscribers only

As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

as
in new window

This chapter was published in:
  • A. J. Auerbach & M. Feldstein (ed.), 2002. "Handbook of Public Economics," Handbook of Public Economics, Elsevier, edition 1, volume 4, number 4.
  • This item is provided by Elsevier in its series Handbook of Public Economics with number 4-28.
    Handle: RePEc:eee:pubchp:4-28
    Contact details of provider: Web page: http://www.elsevier.com/wps/find/bookseriesdescription.cws_home/BS_HE/description

    References listed on IDEAS
    Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

    as in new window
    1. Eldor, Rafael & Pines, David & Schwartz, Abba, 1988. "Home asset preference and productivity shocks," Journal of International Economics, Elsevier, vol. 25(1-2), pages 165-176, August.
    2. Zodrow, George R. & Mieszkowski, Peter, 1986. "Pigou, Tiebout, property taxation, and the underprovision of local public goods," Journal of Urban Economics, Elsevier, vol. 19(3), pages 356-370, May.
    3. James R. Hines Jr., 1993. "Altered States: Taxes and the Location of Foreign Direct Investment in America," NBER Working Papers 4397, National Bureau of Economic Research, Inc.
    4. Alan J. Auerbach, 1988. "Retrospective Capital Gains Taxation," NBER Working Papers 2792, National Bureau of Economic Research, Inc.
    5. David F. Bradford, 1979. "The Incidence and Allocation Effects of a Tax on Corporate Distributions," NBER Working Papers 0349, National Bureau of Economic Research, Inc.
    6. Hines, James R, Jr & Rice, Eric M, 1994. "Fiscal Paradise: Foreign Tax Havens and American Business," The Quarterly Journal of Economics, MIT Press, vol. 109(1), pages 149-82, February.
    7. Rosanne Altshuler & Jack Mintz, 1996. "U.S. Interest Allocation Rules: Effects and Policy," Departmental Working Papers 199410, Rutgers University, Department of Economics.
    8. Huizinga, H., 1994. "The Incidence of Interest Withholding Taxes: Evidence from the LCD Loan Market," Papers 9495, Tilburg - Center for Economic Research.
    9. Trandel, Gregory A., 1992. "Evading the use tax on cross-border sales : Pricing and welfare effects," Journal of Public Economics, Elsevier, vol. 49(3), pages 313-331, December.
    10. Kenneth A. Froot & James R. Hines, Jr., 1995. "Interest Allocation Rules, Financing Patterns, and the Operations of U.S. Multinationals," NBER Chapters, in: The Effects of Taxation on Multinational Corporations, pages 277-312 National Bureau of Economic Research, Inc.
    11. Harry Huizinga & Soeren Bo Nielsen, . "Capital Income and Profits Taxation with Foreign Ownerwhip of Firms," EPRU Working Paper Series 95-09, Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics.
    12. Pesenti, Paolo & van Wincoop, Eric, 2002. "Can Nontradables Generate Substantial Home Bias?," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 34(1), pages 25-50, February.
    13. Rosanne Altshuler & T. Scott Newlon, 1991. "The Effects of U.S. Tax Policy on the Income Repatriation Patterns of U.S. Multinational Corporations," NBER Working Papers 3925, National Bureau of Economic Research, Inc.
    14. Lawrence H. Summers, 1986. "Tax Policy and International Competitiveness," NBER Working Papers 2007, National Bureau of Economic Research, Inc.
    15. Michael Keen & Hannu Piekkola, 1996. "Simple rules for the optimal taxation of international capital income," IFS Working Papers W96/18, Institute for Fiscal Studies.
    16. Assaf Razin & Efraim Sadka, 1989. "International Tax Competition and Gains from Tax Harmonization," NBER Working Papers 3152, National Bureau of Economic Research, Inc.
    17. Michael Devereux & Harold Freeman, 1995. "The impact of tax on foreign direct investment: Empirical evidence and the implications for tax integration schemes," International Tax and Public Finance, Springer, vol. 2(1), pages 85-106, February.
    18. Atkinson, Anthony B & Stern, N H, 1974. "Pigou, Taxation and Public Goods," Review of Economic Studies, Wiley Blackwell, vol. 41(1), pages 119-28, January.
    19. Wilson, John Douglas, 1991. "Tax competition with interregional differences in factor endowments," Regional Science and Urban Economics, Elsevier, vol. 21(3), pages 423-451, November.
    20. Olsen, T.E. & Osmundsen, P., 1998. "Strategic Tax Competition; Implications of National Ownership," Papers 11/98, Norwegian School of Economics and Business Administration-.
    21. Mihir A. Desai & C. Fritz Foley & James R. Hines Jr., 2001. "Repatriation Taxes and Dividend Distortions," NBER Working Papers 8507, National Bureau of Economic Research, Inc.
    22. Roger H. Gordon & Jeffrey K. MacKie-Mason, 1994. "Why Is There Corporate Taxation In a Small Open Economy? The Role of Transfer Pricing and Income Shifting," NBER Working Papers 4690, National Bureau of Economic Research, Inc.
    23. Rosanne Altshuler & Harry Grubert, 2001. "Repatriation Taxes, Repatriation Strategies and Multinational Financial Policy," NBER Working Papers 8144, National Bureau of Economic Research, Inc.
    24. Martin Feldstein, 1979. "Inflation, Tax Rules, and the Stock Market," NBER Working Papers 0403, National Bureau of Economic Research, Inc.
    25. Roger H. Gordon, 1982. "An Optimal Taxation Approach to Fiscal Federalism," NBER Working Papers 1004, National Bureau of Economic Research, Inc.
    26. Joel Slemrod & Carl Hansen & Roger Procter, 1994. "The Seesaw Principle in International Tax Policy," NBER Working Papers 4867, National Bureau of Economic Research, Inc.
    27. Rosanne Altshuler, 1995. "Do Repatriation Taxes Matter? Evidence from the Tax Returns of U.S. Multinationals," NBER Chapters, in: The Effects of Taxation on Multinational Corporations, pages 253-276 National Bureau of Economic Research, Inc.
    28. Ravi Kanbur & Michael Keen, 1991. "Jeux Sans Frontieres: Tax Competition and Tax Coordination when Countries Differ in Size," Working Papers 819, Queen's University, Department of Economics.
    29. 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.
    30. Hans-Werner Sinn, 1990. "Taxation and the Birth of Foreign Subsidiaries," NBER Working Papers 3519, National Bureau of Economic Research, Inc.
    31. Mintz, J. & Tulkens, H., 1990. "Strategic use of tax rates and credits in a model of international corporate income tax competition," CORE Discussion Papers 1990073, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    32. Roger H. Gordon, 1998. "Can High Personal Tax Rates Encourage Entrepreneurial Activity?," IMF Staff Papers, Palgrave Macmillan, vol. 45(1), pages 49-80, March.
    33. Feldstein, Martin & Horioka, Charles, 1980. "Domestic Saving and International Capital Flows," Economic Journal, Royal Economic Society, vol. 90(358), pages 314-29, June.
    34. Devereux, Michael P & Hubbard, R Glenn, 2003. "Taxing Multinationals," International Tax and Public Finance, Springer, vol. 10(4), pages 469-87, August.
    35. Martin Feldstein, 1983. "Inflation, Income Taxes, and the Rate of Interest: A Theoretical Analysis," NBER Chapters, in: Inflation, Tax Rules, and Capital Formation, pages 28-43 National Bureau of Economic Research, Inc.
    36. Wilson, John D., 1986. "A theory of interregional tax competition," Journal of Urban Economics, Elsevier, vol. 19(3), pages 296-315, May.
    37. Boadway, Robin & Bruce, Neil, 1992. "Problems with integrating corporate and personal income taxes in an open economy," Journal of Public Economics, Elsevier, vol. 48(1), pages 39-66, June.
    38. Mintz, Jack M, 1990. "Corporate Tax Holidays and Investment," World Bank Economic Review, World Bank Group, vol. 4(1), pages 81-102, January.
    39. Parsley, David C & Wei, Shang-Jin, 1996. "Convergence to the Law of One Price without Trade Barriers or Currency Fluctuations," The Quarterly Journal of Economics, MIT Press, vol. 111(4), pages 1211-36, November.
    40. Leslie Papke, 2000. "One-Way Treaty with the World: The U.S. Withholding Tax and the Netherlands Antilles," International Tax and Public Finance, Springer, vol. 7(3), pages 295-313, May.
    41. Doyle, Christopher & van Wijnbergen, Sweder, 1984. "Taxation of Foreign Multinationals: A Sequential Bargaining Approach to Tax Holidays," CEPR Discussion Papers 25, C.E.P.R. Discussion Papers.
    42. James R. Hines Jr., 1991. "Dividends and Profits: Some Unsubtle Foreign Influences," NBER Working Papers 3730, National Bureau of Economic Research, Inc.
    43. Alfons Weichenrieder, 1996. "Anti-tax-avoidance provisions and the size of foreign direct investment," International Tax and Public Finance, Springer, vol. 3(1), pages 67-81, January.
    44. David Harris & Randall Morck & Joel B. Slemrod, 1993. "Income Shifting in U.S. Multinational Corporations," NBER Chapters, in: Studies in International Taxation, pages 277-308 National Bureau of Economic Research, Inc.
    45. Mintz, Jack & Tulkens, Henry, 1986. "Commodity tax competition between member states of a federation: equilibrium and efficiency," Journal of Public Economics, Elsevier, vol. 29(2), pages 133-172, March.
    46. Joel B. Slemrod, 1990. "Tax Effects on Foreign Direct Investment in the United States: Evidence from a Cross-Country Comparison," NBER Chapters, in: Taxation in the Global Economy, pages 79-122 National Bureau of Economic Research, Inc.
    47. Charles L. Ballard & Don Fullerton & John B. Shoven & John Whalley, 1985. "General Equilibrium Analysis of Tax Policies," NBER Chapters, in: A General Equilibrium Model for Tax Policy Evaluation, pages 6-24 National Bureau of Economic Research, Inc.
    48. Roger H Gordon & Joosung Jun, 1993. "Taxes and the Form of Ownership of Foreign Corporate Equity," CEPR Financial Markets Paper 0029, European Science Foundation Network in Financial Markets, c/o C.E.P.R, 77 Bastwick Street, London EC1V 3PZ..
    49. Kenneth A. Froot & Michael Kim & Kenneth Rogoff, 1995. "The Law of One Price Over 700 Years," NBER Working Papers 5132, National Bureau of Economic Research, Inc.
    50. Horst, Thomas, 1980. "A Note on the Optimal Taxation of International Investment Income," The Quarterly Journal of Economics, MIT Press, vol. 94(4), pages 793-98, June.
    51. James R. Hines, Jr., 1994. "Taxes, Technology Transfer, and the R&D Activities of Multinational Firms," NBER Working Papers 4932, National Bureau of Economic Research, Inc.
    52. Michael J. Boskin & William G. Gale, 1987. "New Results on the Effects of Tax Policy on the International Location of Investment," NBER Chapters, in: The Effects of Taxation on Capital Accumulation, pages 201-222 National Bureau of Economic Research, Inc.
    53. Deborah L. Swenson, 2000. "Transaction Type and the Effect of Taxes on the Distribution of Foreign Direct Investment in the United States," NBER Chapters, in: International Taxation and Multinational Activity, pages 89-112 National Bureau of Economic Research, Inc.
    54. 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.
    55. Roger H. Gordon, 1990. "Can Capital Income Taxes Survive in Open Economies?," NBER Working Papers 3416, National Bureau of Economic Research, Inc.
    56. Huizinga, Harry, 1992. "The tax treatment of R&D expenditures of multinational enterprises," Journal of Public Economics, Elsevier, vol. 47(3), pages 343-359, April.
    57. Hartman, David G., 1985. "Tax policy and foreign direct investment," Journal of Public Economics, Elsevier, vol. 26(1), pages 107-121, February.
    58. Assaf Razin & Joel Slemrod, 1990. "Taxation in the Global Economy," NBER Books, National Bureau of Economic Research, Inc, number razi90-1, August.
    59. Hoyt, William H., 1991. "Property taxation, Nash equilibrium, and market power," Journal of Urban Economics, Elsevier, vol. 30(1), pages 123-131, July.
    60. Naito, Hisahiro, 1999. "Re-examination of uniform commodity taxes under a non-linear income tax system and its implication for production efficiency," Journal of Public Economics, Elsevier, vol. 71(2), pages 165-188, February.
    61. Dixit, Avinash, 1985. "Tax policy in open economies," Handbook of Public Economics, in: A. J. Auerbach & M. Feldstein (ed.), Handbook of Public Economics, edition 1, volume 1, chapter 6, pages 313-374 Elsevier.
    62. Hines, J.R.J. & Hubbard, R.G., 1989. "Coming Home To America - Devidend Repatriations By U.S. Multinationals," Papers 146, Princeton, Woodrow Wilson School - Public and International Affairs.
    63. Mihir A. Desai & James R. Hines Jr., 1997. "Excess Capital Flows and the Burden of Inflation in Open Economies," NBER Working Papers 6064, National Bureau of Economic Research, Inc.
    64. Roger H. Gordon, 1982. "Interest Rates, Inflation, and Corporate Financial Policy," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 13(2), pages 461-491.
    65. Alan J. Auerbach, 1980. "Wealth Maximization and the Cost of Capital," NBER Working Papers 0254, National Bureau of Economic Research, Inc.
    66. Coughlin, Cletus C & Terza, Joseph V & Arromdee, Vachira, 1991. "State Characteristics and the Location of Foreign Direct Investment within the United States," The Review of Economics and Statistics, MIT Press, vol. 73(4), pages 675-83, November.
    67. Werner, Ingrid M., 1994. "Capital income taxation and international portfolio choice," Journal of Public Economics, Elsevier, vol. 53(2), pages 205-222, February.
    68. Grubert, Harry & Mutti, John, 1991. "Taxes, Tariffs and Transfer Pricing in Multinational Corporate Decision Making," The Review of Economics and Statistics, MIT Press, vol. 73(2), pages 285-93, May.
    69. Bond, E.W. & Samuelson, L., 1988. "Strategic Behavior And The Rules For International Taxation Of Capital," Papers 3-88-10, Pennsylvania State - Department of Economics.
    70. Eaton, Jonathan & Gersovitz, Mark, 1981. "Debt with Potential Repudiation: Theoretical and Empirical Analysis," Review of Economic Studies, Wiley Blackwell, vol. 48(2), pages 289-309, April.
    71. Hines, James R. Jr., 1999. "The Case against Deferral: A Deferential Reconsideration," National Tax Journal, National Tax Association, vol. 52(n. 3), pages 385-404, September.
    72. Hartley, Peter, 1986. "Portfolio Theory and Foreign Investment--The Role of Non-marketed Assets," The Economic Record, The Economic Society of Australia, vol. 62(178), pages 286-95, September.
    73. Linda L. Tesar & Ingrid M. Werner, 1994. "International Equity Transactions and U.S. Portfolio Choice," NBER Working Papers 4611, National Bureau of Economic Research, Inc.
    74. James R. Markusen, 1995. "The Boundaries of Multinational Enterprises and the Theory of International Trade," Journal of Economic Perspectives, American Economic Association, vol. 9(2), pages 169-189, Spring.
    75. Harry Grubert & Timothy Goodspeed & Deborah L. Swenson, 1993. "Explaining the Low Taxable Income of Foreign-Controlled Companies in the United States," NBER Chapters, in: Studies in International Taxation, pages 237-276 National Bureau of Economic Research, Inc.
    76. 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.
    77. Hines, James Jr., 1994. "Credit and deferral as international investment incentives," Journal of Public Economics, Elsevier, vol. 55(2), pages 323-347, October.
    78. Bucovetsky, S., 1991. "Asymmetric tax competition," Journal of Urban Economics, Elsevier, vol. 30(2), pages 167-181, September.
    79. Adler, Michael & Dumas, Bernard, 1983. " International Portfolio Choice and Corporation Finance: A Synthesis," Journal of Finance, American Finance Association, vol. 38(3), pages 925-84, June.
    80. Levi, Maurice D, 1977. "Taxation and "Abnormal" International Capital Flows," Journal of Political Economy, University of Chicago Press, vol. 85(3), pages 635-46, June.
    81. Goodspeed, T-J & White, A-D, 1996. "International taxation," Papers 96-11, Wellesley College - Department of Economics.
    82. Bottazzi, Laura & Pesenti, Paolo & van Wincoop, Eric, 1996. "Wages, profits and the international portfolio puzzle," European Economic Review, Elsevier, vol. 40(2), pages 219-254, February.
    83. Desai, Mihir A. & Hines Jr., James R., 1999. ""Basket cases": Tax incentives and international joint venture participation by American multinational firms," Journal of Public Economics, Elsevier, vol. 71(3), pages 379-402, March.
    84. Bond, Eric W, 1981. "Tax Holidays and Industry Behavior," The Review of Economics and Statistics, MIT Press, vol. 63(1), pages 88-95, February.
    85. Alberto Giovannini & R. Glenn Hubbard & Joel Slemrod, 1993. "Studies in International Taxation," NBER Books, National Bureau of Economic Research, Inc, number giov93-1, August.
    86. repec:cup:cbooks:9780521420563 is not listed on IDEAS
    87. Roger H. Gordon & Joel Slemrod, 1988. "Do We Collect Any Revenue from Taxing Capital Income?," NBER Chapters, in: Tax Policy and the Economy: Volume 2, pages 89-130 National Bureau of Economic Research, Inc.
    88. Swenson, Deborah L., 1994. "The impact of U.S. tax reform on foreign direct investment in the United States," Journal of Public Economics, Elsevier, vol. 54(2), pages 243-266, June.
    89. French, Kenneth R & Poterba, James M, 1991. "Investor Diversification and International Equity Markets," American Economic Review, American Economic Association, vol. 81(2), pages 222-26, May.
    90. Hines, James R. Jr., 1999. "Lessons from Behavioral Responses to International Taxation," National Tax Journal, National Tax Association, vol. 52(n. 2), pages 305-22, June.
    91. Roger H. Gordon & Hal R. Varian, 1986. "Taxation of Asset Income in the Presence of a World Securites Market," NBER Working Papers 1994, National Bureau of Economic Research, Inc.
    92. Cnossen, Sijbren (ed.), 2000. "Taxing Capital Income in the European Union: Issues and Options for Reform," OUP Catalogue, Oxford University Press, number 9780198297833, March.
    93. Harry Grubert & Joel Slemrod, 1998. "The Effect Of Taxes On Investment And Income Shifting To Puerto Rico," The Review of Economics and Statistics, MIT Press, vol. 80(3), pages 365-373, August.
    94. Razin, Assaf & Sadka, Efraim, 1991. "Efficient investment incentives in the presence of capital flight," Journal of International Economics, Elsevier, vol. 31(1-2), pages 171-181, August.
    95. Grubert, Harry, 1998. "Taxes and the division of foreign operating income among royalties, interest, dividends and retained earnings," Journal of Public Economics, Elsevier, vol. 68(2), pages 269-290, May.
    96. Julie Collins & Douglas Shackelford, 1995. "Corporate domicile and average effective tax rates: The cases of Canada, Japan, the United Kingdom, and the United States," International Tax and Public Finance, Springer, vol. 2(1), pages 55-83, February.
    97. Wilson, John Douglas, 1999. "Theories of Tax Competition," National Tax Journal, National Tax Association, vol. 52(n. 2), pages 269-304, June.
    98. 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.
    Full references (including those not matched with items on IDEAS)

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    When requesting a correction, please mention this item's handle: RePEc:eee:pubchp:4-28. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Zhang, Lei)

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.