Working Paper: NBER ID: w2460
Authors: Alberto Giovannini
Abstract: This paper studies the welfare effects of international investment to evade domestic taxes on domestic investment income. Capital mobility for tax evasion eliminates distortions in the intertemporal allocation of consumption, but introduces distortions in domestic production. Conversely, a regime where residents pay taxes on all investment income, domestic and foreign, introduces distortions in intertemporal consumption allocation, but leaves domestic production distortion-free. The relative magnitude of the interest elasticity of savings and the interest elasticity of domestic investment determines the welfare effects of capital movements for the purpose tax evasion.
Keywords: capital mobility; tax evasion; domestic investment; welfare effects
JEL Codes: H26; F21
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Capital mobility for tax evasion (F20) | reduction in domestic investment (E20) |
| Capital mobility (F20) | distortions in domestic production (H31) |
| Tax evasion (H26) | distortions in intertemporal consumption allocation (D15) |
| Residents taxed on all investment income (H24) | distortions in intertemporal consumption allocation (D15) |
| Tax regime (H25) | impacts on domestic welfare (H53) |
| Interest elasticity of savings and domestic investment (E21) | overall welfare effects (D69) |