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Tariff Jumping Foreign Investment and Capital Taxation

Author

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  • Vivek Dehejia
  • Alfons J. Weichenrieder

Abstract

This paper reconsiders the welfare effects of "tariff jumping" direct investment if mobile capital is subjected to taxation. In contrast to the conventional wisdom, the receiving country may in this case gain from the incremental inflow of capital, as this diverts tax revenues from the rest of the world. In the case of perfect capital mobility, this possibility becomes a certainty. Our argument provides one rationale for a small country to levy a distorting tariff in a second best world in which capital taxes already exist.

Suggested Citation

  • Vivek Dehejia & Alfons J. Weichenrieder, 2000. "Tariff Jumping Foreign Investment and Capital Taxation," CESifo Working Paper Series 260, CESifo Group Munich.
  • Handle: RePEc:ces:ceswps:_260
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    File URL: http://www.cesifo-group.de/DocDL/cesifo_wp260.pdf
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    References listed on IDEAS

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    1. Ruffin, Roy J., 1984. "International factor movements," Handbook of International Economics,in: R. W. Jones & P. B. Kenen (ed.), Handbook of International Economics, edition 1, volume 1, chapter 5, pages 237-288 Elsevier.
    2. 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.
    3. Gordon, Roger H, 1992. " Can Capital Income Taxes Survive in Open Economies?," Journal of Finance, American Finance Association, vol. 47(3), pages 1159-1180, July.
    4. G. D. A. MacDougall, 1960. "THE BENEFITS and COSTS OF PRIVATE INVESTMENT FROM ABROAD: A THEORETICAL APPROACH," The Economic Record, The Economic Society of Australia, vol. 36(73), pages 13-35, March.
    5. Bhagwati, Jagdish N & Dinopoulos, Elias & Wong, Kar-yiu, 1992. "Quid Pro Quo Foreign Investment," American Economic Review, American Economic Association, vol. 82(2), pages 186-190, May.
    6. Assaf Razin & Efraim Sadka, 1991. "Vanishing Tax on Capital Income in the Open Economy," NBER Working Papers 3796, National Bureau of Economic Research, Inc.
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    Cited by:

    1. repec:rss:jnljfe:v1i2p3 is not listed on IDEAS
    2. Nitesh Saha & John Gilbert, 2004. "Immiserizing Growth in a Developing Economy Export Enclave," International Journal of Business and Economics, College of Business and College of Finance, Feng Chia University, Taichung, Taiwan, vol. 3(3), pages 217-224, December.
    3. Fuest, Clemens, 2005. "Economic integration and tax policy with endogenous foreign firm ownership," Journal of Public Economics, Elsevier, vol. 89(9-10), pages 1823-1840, September.
    4. Gilbert, John & Tower, Edward, 2002. "Protectionism, labor mobility, and immiserizing growth in developing economies," Economics Letters, Elsevier, vol. 75(1), pages 135-140, March.
    5. Ram Mudambi & Pietro Navarra & Andrew Delios, 2013. "Government regulation, corruption, and FDI," Asia Pacific Journal of Management, Springer, vol. 30(2), pages 487-511, June.
    6. Luis Lanaspa & Fernando Pueyo & Fernando Sanz, 2008. "Foreign direct investment, industrial location and capital taxation," The Annals of Regional Science, Springer;Western Regional Science Association, vol. 42(2), pages 413-423, June.

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