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Must losing taxes on saving be harmful?

  • Huizinga, Harry

    (Department of Economics, Copenhagen Business School)

  • Nielsen, Søren Bo

    (Department of Economics, Copenhagen Business School)

Internationalization offers enhanced opportunities for individuals to place savings abroad and evade domestic saving taxation. This paper asks whether the concomi- tant 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. A world with 'high-spending' governments, in contrast, is made worse off by the loss of saving taxes,and hence stands to gain from international cooperation to restore saving taxation.

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Paper provided by Copenhagen Business School, Department of Economics in its series Working Papers with number 15-2004.

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Length: 29 pages
Date of creation: 05 May 2004
Date of revision:
Handle: RePEc:hhs:cbsnow:2004_015
Contact details of provider: Postal: Department of Economics, Copenhagen Business School, Solbjerg Plads 3 C, 5. sal, DK-2000 Frederiksberg, Denmark
Phone: 38 15 25 75
Fax: 38 15 34 99
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  1. 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.
  2. 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.
  3. 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.
  4. Bucovetsky, S., 1991. "Asymmetric tax competition," Journal of Urban Economics, Elsevier, vol. 30(2), pages 167-181, September.
  5. Huizinga, Harry & Nielsen, Soren Bo, 2003. "Withholding taxes or information exchange: the taxation of international interest flows," Journal of Public Economics, Elsevier, vol. 87(1), pages 39-72, January.
  6. 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.
  7. Assaf Razin & Efraim Sadka, 1989. "International Tax Competition and Gains from Tax Harmonization," NBER Working Papers 3152, National Bureau of Economic Research, Inc.
  8. Harry Huizinga & Søren Bo Nielsen, . "The Coordination of Capital Income and Profit Taxation with Cross-Ownership of Firms," EPRU Working Paper Series 96-17, Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics.
  9. Haufler, Andreas, . "Taxation in a Global Economy," Monographs in Economics, University of Munich, Department of Economics, number 20387, March.
  10. 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.
  11. 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.
  12. Keen, M. & Ligthart, J.E., 2004. "Incentives and Information Exchange in International Taxation," Discussion Paper 2004-54, Tilburg University, Center for Economic Research.
  13. 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.
  14. repec:cup:cbooks:9780521047593 is not listed on IDEAS
  15. Mintz, Jack & Tulkens, Henry, 1996. "Optimality properties of alternative systems of taxation of foreign capital income," Journal of Public Economics, Elsevier, vol. 60(3), pages 373-399, June.
  16. Wilson, John Douglas, 1999. "Theories of Tax Competition," National Tax Journal, National Tax Association, vol. 52(n. 2), pages 269-304, June.
  17. repec:cup:cbooks:9780521782760 is not listed on IDEAS
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