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Notes on cash - flow taxation

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  • Gordon, Roger H.

Abstract

Under cash-flow taxation, a country can tax the cash flow of domestic producers, domestic residents, or domestic citizens. The implications are different in each case. The paper examines the positive and normative effects of various versions of a cash-flow tax, focusing on the effects of such a tax in a small open economy. A country must decide, for example, whether investment in each type of asset will be taxed based on its cash flow or will instead be entirely tax exempt. The economic implications differ, depending on whether the government decides or the choice may be left to each tax payer. In addition tax flow rates may vary: as a result of a progressive rate schedule; according to the type of tax payer; or over time, depending on economic conditions. Substantial problems can result from each type of variation. Finally, inequities can arise during the transition to a cash-flow tax. Different inequities arise depending on what tax precedes the cash-flow tax. And a partial introduction of cash-flow taxation may open important arbitrage opportunities.

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  • Gordon, Roger H., 1989. "Notes on cash - flow taxation," Policy Research Working Paper Series 210, The World Bank.
    • Handle: RePEc:wbk:wbrwps:210
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    References listed on IDEAS

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    2. Fullerton, Don & Shoven, John B. & Whalley, John, 1983. "Replacing the U.S. income tax with a progressive consumption tax : A sequenced general equilibrium approach," Journal of Public Economics, Elsevier, vol. 20(1), pages 3-23, February.
    3. McGuire, Martin, 1974. "Group Segregation and Optimal Jurisdictions," Journal of Political Economy, University of Chicago Press, vol. 82(1), pages 112-132, Jan.-Feb..
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    6. Martin Feldstein & David Hartman, 1979. "The Optimal Taxation of Foreign Source Investment Income," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 93(4), pages 613-629.
    7. Roger H. Gordon, 1985. "Taxation of Corporate Capital Income: Tax Revenues Versus Tax Distortions," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 100(1), pages 1-27.
    8. Judd, Kenneth L, 1987. "The Welfare Cost of Factor Taxation in a Perfect-Foresight Model," Journal of Political Economy, University of Chicago Press, vol. 95(4), pages 675-709, August.
    9. Chris Doyle & Sweder Wijnbergen, 1994. "Taxation of foreign multinationals: A sequential bargaining approach to tax holidays," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 1(3), pages 211-225, October.
    10. Roger H. Gordon & Joel Slemrod, 1988. "Do We Collect Any Revenue from Taxing Capital Income?," NBER Chapters, in: Tax Policy and the Economy: Volume 2, pages 89-130, National Bureau of Economic Research, Inc.
    11. Feldstein, Martin, 1976. "On the theory of tax reform," Journal of Public Economics, Elsevier, vol. 6(1-2), pages 77-104.
    12. David G. Hartman, 1981. "Tax Policy and Foreign Direct Investment," NBER Working Papers 0689, National Bureau of Economic Research, Inc.
    13. 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.
    14. Roger H. Gordon, 1981. "Taxation of Corporate Capital Income: Tax Revenues vs. Tax Distortions," NBER Working Papers 0687, National Bureau of Economic Research, Inc.
    15. Gordon, Roger & Kalambokidis, Laura & Slemrod, Joel, 2004. "Do we now collect any revenue from taxing capital income?," Journal of Public Economics, Elsevier, vol. 88(5), pages 981-1009, April.
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