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The Economic and Welfare Effects of Taxing Foreign Assets

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  • Ed W.M.T. Westerhout

Abstract

This paper develops a two-country portfolio model to analyse the portfolio-composition, interest-rate and welfare effects of taxing foreign equity. Taxes reduce or increase trade in financial assets, depending on the type of taxation. The same goes for the effects of taxes on the differential between the expected rate of return on equity and the interest rate on bonds. In contrast, welfare effects are unambiguous. In the case of perfect as well as that of imperfect substitution of domestic and foreign goods, it is optimal to leave foreign equity untaxed.

Suggested Citation

  • Ed W.M.T. Westerhout, "undated". "The Economic and Welfare Effects of Taxing Foreign Assets," EPRU Working Paper Series 94-03, Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics.
    • Handle: RePEc:kud:epruwp:94-03
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    Cited by:

    1. Henk Kranendonk & Johan Verbruggen, 2005. "How to determine the contributions of domestic demand and exports to economic growth?," CPB Memorandum 129.rdf, CPB Netherlands Bureau for Economic Policy Analysis.
    2. Stefan Boeters, 2009. "Optimal tax progressivity in unionised labour markets; what are the driving forces?," CPB Discussion Paper 129.rdf, CPB Netherlands Bureau for Economic Policy Analysis.

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