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Optimal Incentives to Domestic Investment in the Presence of Capital Flight

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  • Assaf Razin
  • Efraim Sadka

Abstract

This paper develops a model of an open economy which employs distortionary taxes to finance public consumption, and with an access to the world capital market. The paper examines the efficiency of quantity restrictions on capital exports and the accompanying set of taxes. A distinction is made between a benchmark case where the government can fully tax foreign-source income and a more realistic case where the government cannot effectively tax foreign-source income.

Suggested Citation

  • Assaf Razin & Efraim Sadka, 1989. "Optimal Incentives to Domestic Investment in the Presence of Capital Flight," NBER Working Papers 3080, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:3080
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    References listed on IDEAS

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    1. Assaf Razin & Efraim Sadka, 1990. "Integration of International Capital Markets: The Size of Government and Tax Coordination," NBER Chapters,in: Taxation in the Global Economy, pages 331-356 National Bureau of Economic Research, Inc.
    2. Efraim Sadka, 1977. "A Note on Producer Taxation and Public Production," Review of Economic Studies, Oxford University Press, vol. 44(2), pages 385-387.
    3. Peter A. Diamond & J. A. Mirrlees, 1968. "Optimal Taxation and Public Production," Working papers 22, Massachusetts Institute of Technology (MIT), Department of Economics.
    4. Assaf Razin & Efraim Sadka, 1989. "Integration of the International Capital Markets: The Size of Government and Tax Coordination," NBER Working Papers 2863, National Bureau of Economic Research, Inc.
    5. Dixit, Avinash, 1985. "Tax policy in open economies," Handbook of Public Economics,in: A. J. Auerbach & M. Feldstein (ed.), Handbook of Public Economics, edition 1, volume 1, chapter 6, pages 313-374 Elsevier.
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    Cited by:

    1. Michael P. Dooley & Kenneth M. Kletzer, 1994. "Capital flight, external debt, and domestic policies," Economic Review, Federal Reserve Bank of San Francisco, pages 29-37.
    2. Anke Hoeffler & Catherine A Pattillo & Paul Collier, 1999. "Flight Capital as a Portfolio Choice," IMF Working Papers 99/171, International Monetary Fund.
    3. Marcella Mulino, 2002. "On the determinants of capital flight from Russia," Atlantic Economic Journal, Springer;International Atlantic Economic Society, vol. 30(2), pages 148-169, June.

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