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The X Tax in the World Economy

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  • David F. Bradford

    (Princeton University, New York University, NBER, CESifo)

Abstract

This paper explores how the tax design called the X tax could alleviate the complexities and avoidance opportunities plaguing the existing U.S. system for taxing international business income. In addition to laying out the general efficiency, equity and administrative characteristics of an X tax, the paper considers, in particular, the fundamental choice between two treatments of transborder business transactions ? the origin and destination principles. The destination-principle approach sidesteps the need to identify arm?s length terms of transborder transactions between related business entities ? the transfer-pricing problem. This problem remains in the origin-principle approach, which, however, presents fewer challenges of monitoring the flow of goods and services across borders, obviates what I call the ?tourism problem? whereby people can reduce their taxes by consuming in a low-tax jurisdiction and, arguably most important, avoids transition effects associated with introduction of the tax and subsequent tax rate changes that occur in the destination approach. To obtain the advantages without the principal disadvantage, I suggest special rules for transborder transactions between related parties that would eliminate the transfer-pricing problem in an origin-based system.

Suggested Citation

  • David F. Bradford, 2003. "The X Tax in the World Economy," Working Papers 109, Princeton University, Department of Economics, Center for Economic Policy Studies..
  • Handle: RePEc:pri:cepsud:93bradford.pdf
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    References listed on IDEAS

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    1. David F. Bradford, 1998. "Transition to and Tax-Rate Flexibility in a Cash-Flow-Type Tax," NBER Chapters,in: Tax Policy and the Economy, Volume 12, pages 151-172 National Bureau of Economic Research, Inc.
    2. Charles E. Mclure, 1987. "The Value-Added Tax: Key to Deficit Reduction?," Books, American Enterprise Institute, number 725195, July.
    3. Boadway, Robin & Bruce, Neil, 1984. "A general proposition on the design of a neutral business tax," Journal of Public Economics, Elsevier, vol. 24(2), pages 231-239, July.
    4. Gordon, Roger H. & Hines, James Jr, 2002. "International taxation," Handbook of Public Economics,in: A. J. Auerbach & M. Feldstein (ed.), Handbook of Public Economics, edition 1, volume 4, chapter 28, pages 1935-1995 Elsevier.
    5. David Bradford, "undated". "Consumption Taxes: Some Fundamental Transition Issues," EPRU Working Paper Series 95-15, Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics.
    6. Auerbach, Alan J. & Bradford, David F., 2004. "Generalized cash-flow taxation," Journal of Public Economics, Elsevier, vol. 88(5), pages 957-980, April.
    7. Martin S. Feldstein & Paul R. Krugman, 1990. "International Trade Effects of Value-Added Taxation," NBER Chapters,in: Taxation in the Global Economy, pages 263-282 National Bureau of Economic Research, Inc.
    8. Feldstein, Martin, 1976. "On the theory of tax reform," Journal of Public Economics, Elsevier, vol. 6(1-2), pages 77-104.
    9. Robert E. Hall, 1996. "The Effects of Tax Reform on Prices and Asset Values," NBER Chapters,in: Tax Policy and the Economy, Volume 10, pages 71-88 National Bureau of Economic Research, Inc.
    10. Zodrow,George R. & Mieszkowski,Peter (ed.), 2002. "United States Tax Reform in the 21st Century," Cambridge Books, Cambridge University Press, number 9780521803830.
    11. Bradford, David F, 2003. "Addressing the Transfer-Pricing Problem in an Origin-Basis X Tax," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 10(5), pages 591-610, September.
    12. Zodrow, George R., 1995. "Taxation, uncertainty and the choice of a consumption tax base," Journal of Public Economics, Elsevier, vol. 58(2), pages 257-265, October.
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    Cited by:

    1. Deborah Knirsch & Rainer Niemann, 2008. "Deferred Shareholder Taxation -- Implementing a Neutral Business Tax in the European Union," Accounting in Europe, Taylor & Francis Journals, vol. 5(2), pages 101-125, December.
    2. Auerbach, Alan J., 2012. "The Mirrlees Review: A U.S. Perspective," National Tax Journal, National Tax Association;National Tax Journal, vol. 65(3), pages 685-708, September.

    More about this item

    JEL classification:

    • H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • H87 - Public Economics - - Miscellaneous Issues - - - International Fiscal Issues; International Public Goods

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