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The OECD Model Tax Treaty: Tax Competition and Two-Way Capital

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  • Ronald B. Davies

    () (University of Oregon Economics Department)

Abstract

Model tax treaties do not require tax rate coordination, but do call for either credits or exemptions when calculating a multinational’s domestic taxes. This contradicts recent models with a single capital exporter where deductions are most efficient. I incorporate the fact that many nations import and export capital. With symmetric countries, credits by both is the only treaty equilibrium, resulting in Pareto optimal effective tax rates which weakly dominate the non-treaty equilibrium rates. With asymmetric countries, the treaty need not offer improvements without tax harmonization. With harmonization, it is always possible to reach efficient capital allocations while increasing both countries’ welfares only if neither uses deductions.

Suggested Citation

  • Ronald B. Davies, 1999. "The OECD Model Tax Treaty: Tax Competition and Two-Way Capital," University of Oregon Economics Department Working Papers 2002-7, University of Oregon Economics Department, revised 01 Jan 2002.
  • Handle: RePEc:ore:uoecwp:2002-7
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    File URL: http://economics.uoregon.edu/papers/UO-2002-7_Davies_Two_Way_Capital_Flows.pdf
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    Cited by:

    1. Egger Peter & Wamser Georg, 2013. "Effects of the Endogenous Scope of Preferentialism on International Goods Trade," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 13(2), pages 709-731, July.
    2. Chisik, Richard & Davies, Ronald B., 2004. "Asymmetric FDI and tax-treaty bargaining: theory and evidence," Journal of Public Economics, Elsevier, vol. 88(6), pages 1119-1148, June.

    More about this item

    JEL classification:

    • F20 - International Economics - - International Factor Movements and International Business - - - General
    • H87 - Public Economics - - Miscellaneous Issues - - - International Fiscal Issues; International Public Goods

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