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Taxation of Asset Income in the Presence of a World Securites Market


  • Roger H. Gordon
  • Hal R. Varian


This paper shows, using a standard CAPM model of security prices in a world market, that even small countries can affect the price of domestically issued risky securities, while large countries can affect the prices of all securities. As a result, countries have the incentive to set tax rates such that in equilibrium investors specialize in domestic securities, and net capital flows between countries are restricted. Each country does this to increase the utility of domestic residents, taking as given the tax policies of other governments, but the net outcome is a reduction in world efficiency and likely a reduction in the utility of all individuals.

Suggested Citation

  • 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.
  • Handle: RePEc:nbr:nberwo:1994
    Note: PE

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    References listed on IDEAS

    1. Edwards, J, 1982. "The green paper on corporation tax: a review article," Fiscal Studies, Institute for Fiscal Studies, vol. 3(2), pages 102-113, July.
    2. M. S. Feldstein, 1970. "Corporate Taxation and Dividend Behaviour," Review of Economic Studies, Oxford University Press, vol. 37(1), pages 57-72.
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