The Experts below are selected from a list of 162006 Experts worldwide ranked by ideXlab platform
George R. Zodrow - One of the best experts on this subject based on the ideXlab platform.
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balancing act weighing the factors affecting the taxation of Capital Income in a small open economy
World Scientific Book Chapters, 2019Co-Authors: Margaret K. Mckeehan, George R. ZodrowAbstract:Alternative economic theories yield dramatically different prescriptions for optimal Capital taxation in small open economies. On the one hand, foreign firms, including those with investments that yield firm-specific above-normal returns, have a large number of alternative investment opportunities; this suggests that the supply of foreign direct investment is highly elastic, which implies that small open economies should avoid imposing any source-based taxes on Capital Income. On the other hand, governments invariably want to tax any above-normal returns earned by location-specific Capital, especially if the returns accrue to foreigners, and to take full advantage of the potential revenue increase from any “treasury transfer” effect that arises due to residence-based tax systems with foreign tax credits, such as that utilized by the United States. These factors suggest that investment is highly inelastic with respect to Capital taxation, so that source-based Capital Income taxation is desirable; indeed, in one special case, the Capital Income tax rate for a small open economy should equal the relatively high US tax rate. Moreover, this difficult trade-off is in practice complicated by numerous additional factors: deferral of unrepatriated profits and cross-crediting of foreign tax credits for US multinationals, foreign direct investment from firms from countries that, unlike the United States, operate territorial systems, and the existence of opportunities for both international Capital Income shifting and labor Income shifting. In this paper, we analyze optimal Capital Income taxation in a small open economy model that attempts to balance these conflicting factors.
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Balancing act: weighing the factors affecting the taxation of Capital Income in a small open economy
International Tax and Public Finance, 2017Co-Authors: Margaret K. Mckeehan, George R. ZodrowAbstract:Alternative economic theories yield dramatically different prescriptions for optimal Capital taxation in small open economies. On the one hand, foreign firms, including those with investments that yield firm-specific above-normal returns, have a large number of alternative investment opportunities; this suggests that the supply of foreign direct investment is highly elastic, which implies that small open economies should avoid imposing any source-based taxes on Capital Income. On the other hand, governments invariably want to tax any above-normal returns earned by location-specific Capital, especially if the returns accrue to foreigners, and to take full advantage of the potential revenue increase from any “treasury transfer” effect that arises due to residence-based tax systems with foreign tax credits, such as that utilized by the USA. These factors suggest that investment is highly inelastic with respect to Capital taxation, so that source-based Capital Income taxation is desirable; indeed, in one special case, the Capital Income tax rate for a small open economy should equal the relatively high US tax rate. Moreover, this difficult trade-off is in practice complicated by numerous additional factors: deferral of unrepatriated profits and cross-crediting of foreign tax credits for the US multinationals, foreign direct investment from firms from countries that, unlike the USA, operate territorial systems, and the existence of opportunities for both international Capital Income shifting and labor Income shifting. In this paper, we analyze optimal Capital Income taxation in a small open economy model that attempts to balance these conflicting factors.
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Should Capital Income Be Subject to Consumption-Based Taxation?
2007Co-Authors: George R. ZodrowAbstract:In 2005, the report of the President’s Advisory Panel on Federal Tax Reform proposed two alternative approaches to tax reform. If implemented, both plans would move the tax system farther away from the full taxation of Capital Income that is the hallmark of a true Income tax. However, the panel did not recommend enacting a true consumption tax — instead, both proposals are hybrid Income-consumption taxes. The report thus highlights the uncertainty regarding the appropriate tax treatment of Capital Income, the focus of this book. This chapter examines the central issue the panel faced — whether to implement full-scale consumption-based taxation of Capital Income.
Efraim Sadka - One of the best experts on this subject based on the ideXlab platform.
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The Status of Capital Income Taxation in the Open Economy
2016Co-Authors: Assaf Razin, Efraim SadkaAbstract:The paper addresses the issue of the low taxation of Capital Income for a small open economy which is completely integrated into the world Capital markets. First, the closed- economy optimum tax proposition is extended to the open economy, by appealing to the efficiency of a residence-based taxation, with a zero tax rate at the steady state. Second, the paper proves that if containing Capital flight is not feasible, it is efficient to tax exempt Capital Income from domestic sources along the transition path, as well, Third, even though it is efficient to let Capital flow freely when taxation of foreign-source Income is possible, Capital controls are second-best efficient when such tax policy is infeasible.
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Capital Income Taxation in the Globalized World
2004Co-Authors: Assaf Razin, Efraim SadkaAbstract:The behavior of taxes on Capital Income in the recent decades points to the notion that international tax competition that follows globalization of Capital markets put strong downward pressures on the taxation of Capital Income; a race to the bottom. This behavior has been perhaps most pronounced in the EU-15 following the single market act of 1992. The 2004 enlargement of the EU with 10 new entrants put a strong downward pressure on Capital Income taxation for the EU-15 countries. Tax havens, and the inadequacy of cooperation among national tax authorities in the OECD in information exchanges, put binding ceilings on how much foreign-source Capital Income can be taxed. What then are the implications for the taxes on domestic-source Capital Income? The paper demonstrates that even if some enforcement of taxation on foreign-source Capital Income is feasible, a poor enforcement of international taxes would generate political processes that would reduce significantly the domestic-source Capital Income taxation.
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Vanishing Tax on Capital Income in the Open Economy
1991Co-Authors: Assaf Razin, Efraim SadkaAbstract:The increased integration of the world Capital market implies that the supply of Capital becomes more elastic, and therefore potentially a less efficient base for taxation. In general, the optimal taxation of Capital Income is subject to two conflicting forces. On the one hand the return on existing Capital is a pure rent which is efficient to fully tax away. On the other hand taxing the returns on investment in new Capital would retard growth, thus generating inefficiencies. Capturing these considerations, the paper carries out a simple optimal tax analysis for an open economy, which is fully integrated in the world Capital markets. The analysis identifies well defined circumstances in which the Capital Income tax vanishes.
Yaz Terajima - One of the best experts on this subject based on the ideXlab platform.
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Uninsurable investment risks and Capital Income taxation
Annals of Finance, 2008Co-Authors: Césaire Meh, Yaz TerajimaAbstract:This paper studies the Capital accumulation and welfare implications of reducing Capital Income taxation in a general equilibrium economy with uninsurable investment risks. It has been shown that, with uninsurable investment risks, under-accumulation of Capital may result compared to the complete markets economy. We show that reducing somewhat the Capital Income tax rate increases the Capital stock and leads to a welfare gain. The complete elimination of the Capital Income tax, however, is not necessarily welfare improving.
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Uninsurable investment risks and Capital Income taxation
Annals of Finance, 2008Co-Authors: Césaire Meh, Yaz TerajimaAbstract:Investment risk, Borrowing constraints, Capital accumulation, Capital Income taxation, E21, E22, E62, G32, H24, H25,
Bernd Huber - One of the best experts on this subject based on the ideXlab platform.
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Optimal Capital Income Taxes and Capital Controls in Small Open Economies
International Tax and Public Finance, 1997Co-Authors: Bernd HuberAbstract:This paper studies the optimal taxation of Capital Income in a simplemodel of a small open economy where domestic residents can evade taxeson their foreign investment Income. The national government can onlytax domestic Capital Income and can impose Capital controls, whichhowever absorb real resources. The design of optimal policy in thismodel depends on the revenue needs of the government. For relativelylow levels of government expenditures, it turns out that the countrydoes not levy Capital Income taxes but may restrict Capital exports.Otherwise, the country taxes domestic Capital Income and sets Capitalcontrols such that Capital exports are driven to zero, at an optimum.In contrast to other models with Capital controls it turns out thatthis policy can lead to underinvestment in domestic Capital. JEL Classification Number: E 62, F 41, H 21
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Optimal Capital Income Taxes and Capital Controls in Small Open Economies
International Tax and Public Finance, 1997Co-Authors: Bernd HuberAbstract:This paper studies the optimal taxation of Capital Income in a simplemodel of a small open economy where domestic residents can evade taxeson their foreign investment Income. The national government can onlytax domestic Capital Income and can impose Capital controls, whichhowever absorb real resources. The design of optimal policy in thismodel depends on the revenue needs of the government. For relativelylow levels of government expenditures, it turns out that the countrydoes not levy Capital Income taxes but may restrict Capital exports.Otherwise, the country taxes domestic Capital Income and sets Capitalcontrols such that Capital exports are driven to zero, at an optimum.In contrast to other models with Capital controls it turns out thatthis policy can lead to underinvestment in domestic Capital. JEL Classification Number: E 62, F 41, H 21 Copyright Kluwer Academic Publishers 1997
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Optimal Capital Income Taxes and Capital Controls in Small Open Economies
Munich Reprints in Economics, 1997Co-Authors: Bernd HuberAbstract:This paper studies the optimal taxation of Capital Income in a simple model of a small open economy where domestic residents can evade taxes on their foreign investment Income. The national government can only tax domestic Capital Income and can impose Capital controls, which however absorb real resources. The design of optimal policy in this model depends on the revenue needs of the government. For relatively low levels of government expenditures, it turns out that the country does not levy Capital Income taxes but may restrict Capital exports. Otherwise, the country taxes domestic Capital Income and sets Capital controls such that Capital exports are driven to zero, at an optimum. In contrast to other models with Capital controls it turns out that this policy can lead to underinvestment in domestic Capital.
Roger H. Gordon - One of the best experts on this subject based on the ideXlab platform.
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Capital Income Taxes
2003Co-Authors: Roger H. GordonAbstract:In public economics the conventional wisdom has been that taxes on Capital Income generate high efficiency costs with few offsetting benefits. (1) Average tax rates on the return to Capital are measured to be very high, (2) as are marginal tax rates on savings and investment. (3) There is a large body of research indicating that these high Capital taxes have important effects on the rate of corporate investment, on the allocation of Capital across uses, on whether profits are reported in the United States or offshore, and on corporate and personal financial decisions. (4) Consistent with these forecasts of very high efficiency costs, Slemrod and I find that tax revenue would have been virtually unchanged if the United States had shifted in 1983 to an R-base under the personal and corporate Income tax, thereby exempting Capital Income from tax. (5) Thus, adjustments that taxpayers made to reduce their tax liabilities were extensive enough to wipe out all tax revenue from taxes on Capital Income. Are there any obvious distributional benefits that compensate for these high efficiency costs? At least in a small open economy, the answer is no. (6) Capital can easily escape taxation by going abroad, so that domestic workers, rather than Capital, end up bearing taxes imposed on Capital. Even if the economy is closed, Atkinson and Stiglitz argued, there are no distributional gains from taxing the return to savings as long as utility functions are weakly separable between leisure and consumption." Using data from 1983, Slemrod and I examined the distribution of gains and losses to individuals that would result from shifting to an R-base. We found that the existing U. S. tax system, relative to an R-base, imposed higher taxes on lower-Income investors, who largely invest in taxable bonds, while imposing lower taxes on higher-Income investors, who borrow heavily to buy more lightly taxed assets. These results suggest that the existing tax treatment of Capital Income has perverse distributional effects. Thus, Capital Income taxes have large efficiency costs, collect little revenue, and have no obvious distributional gains. So, the case for using them appears to be very weak. Yet actual tax rates on Capital Income remain high, implying a sharp contrast between theory and practice. A major focus of my research during the last few years has been to look more closely at these above arguments, to see if there are important omissions from the theory that could call into question its implications for Capital Income taxes. Capital Immobility One questionable assumption of the standard model is that the United States is a small open economy. As documented by French and Poterba (8), individual portfolios show strong "home bias:" investors invest far more in financial securities from their own countries than can be explained easily, given the standard forecast of worldwide portfolio diversification. However, the implications of Capital immobility for tax policy depend on why Capital is immobile. One possible reason for home bias in portfolios is real exchange rate risk. Gaspar and I examine the implications of random fluctuations in the relative values of goods produced in different countries for both portfolio choice and tax policy. (9) If random relative values of goods are reflected in random fluctuations of the domestic price level but stable exchange rates, then the model forecasts substantial home bias in equity portfolios, as a hedge against random consumer prices. But since domestic investors buy equity as a hedge, they end up bearing too much production risk from domestic firms. Capital taxes exacerbate this misallocation of risk-bearing. The fact that Capital is immobile does not make taxation of Capital Income a plausible policy per se. Distributional Effects In two other recent papers, I reexamine whether the distributional effects of Capital Income taxes are as perverse as has been argued. …
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Can Capital Income Taxes Survive in Open Economies
The Journal of Finance, 1992Co-Authors: Roger H. GordonAbstract:Optimal-tax theory forecasts that small open economies should not tax Capital Income. Yet, countries do tax Capital Income. Why the inconsistency? This paper shows that use of the double-taxation convention, whereby governments credit taxes paid abroad against domestic taxes, helps explain this inconsistency. In particular, Capital Income will be taxed if a dominant Capital exporter acts as a Stackelberg leader when setting its tax policy. Due to the convention, other countries will then tax Capital imports, making it attractive for the dominant Capital exporter to tax Capital Income. Without a dominant Capital exporter, however, the model still forecasts no Capital-Income taxes. Copyright 1992 by American Finance Association.
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Can Capital Income Taxes Survive in Open Economies
National Bureau of Economic Research, 1990Co-Authors: Roger H. GordonAbstract:Recent theoretical work has argued that a small open economy should use residence-based but not source-based taxes on Capital Income. Given the ease with which residents can evade domestic taxes on foreign earnings from Capital, however, a residence-based tax may not be administratively feasible, leaving no taxes on Capital Income. The objective of this paper is to explore possible reasons why Capital Income taxes have survived in the past, in spite of the above pressures. Any bilateral approach, such as sharing of information among governments or direct coordination of tax rates, suffers from the problem that the coalition of countries is itself a small open economy, so subject to the same pressures. Capital controls, preventing Capital outflows, may well be a sensible policy response and were in fact used by a number of countries. Such controls have many drawbacks, however, and a number of countries are now abandoning them. The final hypothesis explored is that the tax-crediting conventions, used to prevent the double taxation of international Capital flows, served also to coordinate tax rates. The paper shows that while no Nash equilibrium in tax rates exists, given these tax-crediting conventions, a Stackelberg equilibrium does exist if there is either a dominant Capital exporter or a dominant Capital importer, in spite of the ease of tax evasion. While the U.S. , as the dominant Capital exporter during much of the postwar period, may well have served as this Stackelberg leader, world Capital markets are now more complicated. These tax-crediting conventions may no longer be sufficient to sustain Capital-Income taxation.
