IDEAS home Printed from
MyIDEAS: Login to save this paper or follow this series

Why is Capital so Immobile Internationally?: Possible Explanations and Implications for Capital Income Taxation

  • Roger H. Gordon
  • A. Lans Bovenberg

The evidence on international capital immobility is extensive, ranging from the correlations between domestic savings and investment pointed out by Feldstein-Horioka (1980), to real interest differentials across countries, to the lack of international portfolio diversification. To what degree does capital immobility modify past results forecasting that small open economies should not tax savings or investment? The answer depends on the cause of this immobility. We argue that asymmetric information between countries provides the most plausible explanation for the above observations. When we examine optimal tax policy in an open economy allowing for asymmetric information, rather than simply finding that savings and investment should not be taxed, we now forecast government subsidies to foreign acquisitions of domestic firms. Some omitted factors that would argue against subsidizing foreign acquisitions are explored briefly.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL:
Download Restriction: no

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 4796.

in new window

Date of creation: Jul 1994
Date of revision:
Publication status: published as American Economic Review, vol.86, no.5, pp.1057-1075, December1996.
Handle: RePEc:nbr:nberwo:4796
Contact details of provider: Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.
Phone: 617-868-3900
Web page:

More information through EDIRC

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as in new window
  1. Mishkin, Frederic S, 1984. " Are Real Interest Rates Equal across Countries? An Empirical Investigation of International Parity Conditions," Journal of Finance, American Finance Association, vol. 39(5), pages 1345-57, December.
  2. Roger H. Gordon & Joosung Jun, 1992. "Taxes and the Form of Ownership of Foreign Corporate Equity," NBER Working Papers 4159, National Bureau of Economic Research, Inc.
  3. Linda L. Tesar & Ingrid M. Werner, 1994. "International Equity Transactions and U.S. Portfolio Choice," NBER Chapters, in: The Internationalization of Equity Markets, pages 185-227 National Bureau of Economic Research, Inc.
  4. Cumby, Robert E. & Mishkin, Frederic S., 1986. "The international linkage of real interest rates: The European-US connection," Journal of International Money and Finance, Elsevier, vol. 5(1), pages 5-23, March.
  5. 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.
  6. Maurice Obstfeld, 1985. "Capital Mobility in the World Economy: Theory and Measurement," NBER Working Papers 1692, National Bureau of Economic Research, Inc.
  7. Tesar, L.L., 1988. "Savings, Investment And International Capital Flows," RCER Working Papers 154, University of Rochester - Center for Economic Research (RCER).
  8. Kyle, Albert S, 1985. "Continuous Auctions and Insider Trading," Econometrica, Econometric Society, vol. 53(6), pages 1315-35, November.
  9. Alberto Giovannini & R. Glenn Hubbard & Joel Slemrod, 1993. "Studies in International Taxation," NBER Books, National Bureau of Economic Research, Inc, number giov93-1, December.
  10. Razin, Assaf & Sadka, Efraim, 1991. "International tax competition and gains from tax harmonization," Economics Letters, Elsevier, vol. 37(1), pages 69-76, September.
  11. Akerlof, George A, 1970. "The Market for 'Lemons': Quality Uncertainty and the Market Mechanism," The Quarterly Journal of Economics, MIT Press, vol. 84(3), pages 488-500, August.
  12. Feldstein, Martin & Horioka, Charles, 1980. "Domestic Saving and International Capital Flows," Economic Journal, Royal Economic Society, vol. 90(358), pages 314-29, June.
  13. 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.
  14. Finn, Mary G., 1990. "On savings and investment dynamics in a small open economy," Journal of International Economics, Elsevier, vol. 29(1-2), pages 1-21, August.
  15. Robert E. Cumby & Maurice Obstfeld, 1982. "International Interest-Rate and Price-Level Linkages Under Flexible Exchange Rates: A Review of Recent Evidence," NBER Working Papers 0921, National Bureau of Economic Research, Inc.
  16. Kenneth R. French & James M. Poterba, 1991. "Investor Diversification and International Equity Markets," NBER Working Papers 3609, National Bureau of Economic Research, Inc.
  17. Harris, Robert S & Ravenscraft, David, 1991. " The Role of Acquisitions in Foreign Direct Investment: Evidence from the U.S. Stock Market," Journal of Finance, American Finance Association, vol. 46(3), pages 825-44, July.
  18. Goodspeed, T-J & White, A-D, 1996. "International taxation," Papers 96-11, Wellesley College - Department of Economics.
  19. Murphy, Robert G., 1984. "Capital mobility and the relationship between saving and investment rates in OECD countries," Journal of International Money and Finance, Elsevier, vol. 3(3), pages 327-342, December.
  20. Harry Grubert & Timothy Goodspeed & Deborah L. Swenson, 1993. "Explaining the Low Taxable Income of Foreign-Controlled Companies in the United States," NBER Chapters, in: Studies in International Taxation, pages 237-276 National Bureau of Economic Research, Inc.
  21. Tamim Bayoumi, 1990. "Saving-Investment Correlations: Immobile Capital, Government Policy, or Endogenous Behavior?," IMF Staff Papers, Palgrave Macmillan, vol. 37(2), pages 360-387, June.
  22. Lawrence H. Summers, 1986. "Tax Policy and International Competitiveness," NBER Working Papers 2007, National Bureau of Economic Research, Inc.
  23. Gerard Caprio & David H. Howard, 1983. "Domestic saving, current accounts, and international capital mobility," International Finance Discussion Papers 244, Board of Governors of the Federal Reserve System (U.S.).
  24. Adler, Michael & Dumas, Bernard, 1983. " International Portfolio Choice and Corporation Finance: A Synthesis," Journal of Finance, American Finance Association, vol. 38(3), pages 925-84, June.
  25. Michael Dooley & Jeffrey Frankel & Donald J. Mathieson, 1987. "International Capital Mobility: What Do Saving-Investment Correlations Tell Us?," IMF Staff Papers, Palgrave Macmillan, vol. 34(3), pages 503-530, September.
Full references (including those not matched with items on IDEAS)

This item is featured on the following reading lists or Wikipedia pages:

  1. Roger Gordon in Wikipedia German ne '')

When requesting a correction, please mention this item's handle: RePEc:nbr:nberwo:4796. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ()

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.