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Simple rules for the optimal taxation of international capital income

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  • Michael Keen

    () (Institute for Fiscal Studies and International Monetary Fund)

  • Hannu Piekkola

    (Institute for Fiscal Studies)

Abstract

This paper derives a series of simple characterisations of optimally coordinated regimes for the taxation of international capital income. The influential 'weighted average' rule of Horst (1980) is shown to presume unattractive restrictions on the set of tax instruments available, precluding any need for distorting taxes. But it is also shown that another and strikingly simple weighted average rule applies in the more compelling circumstances in which lump sum taxes are unavailable and distorting taxes (on both domestic and border-crossing capital income) optimally deployed. Horst's central conclusions prove remarkably robust, but the new rule derived here ?which contains the other key result in this area as a special case ?points to a role in the design of collectively optimal tax structures for restrictions on the ability to tax pure profits that has previously been neglected.

Suggested Citation

  • Michael Keen & Hannu Piekkola, 1996. "Simple rules for the optimal taxation of international capital income," IFS Working Papers W96/18, Institute for Fiscal Studies.
  • Handle: RePEc:ifs:ifsewp:96/18
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    1. Mayer, Colin, 1988. "New issues in corporate finance," European Economic Review, Elsevier, vol. 32(5), pages 1167-1183, June.
    2. Whited, Toni M, 1992. " Debt, Liquidity Constraints, and Corporate Investment: Evidence from Panel Data," Journal of Finance, American Finance Association, vol. 47(4), pages 1425-1460, September.
    3. Nickell, Stephen J, 1981. "Biases in Dynamic Models with Fixed Effects," Econometrica, Econometric Society, vol. 49(6), pages 1417-1426, November.
    4. Colin Mayer, 1990. "Financial Systems, Corporate Finance, and Economic Development," NBER Chapters,in: Asymmetric Information, Corporate Finance, and Investment, pages 307-332 National Bureau of Economic Research, Inc.
    5. Nickell, Stephen, 1985. "Error Correction, Partial Adjustment and All That: An Expository Note," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 47(2), pages 119-129, May.
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