Working Paper: NBER ID: w3080
Authors: Assaf Razin; Efraim Sadka
Abstract: This paper develops a model of an open economy which employs distortionary taxes to finance public consumption, and with an access to the world capital market. The paper examines the efficiency of quantity restrictions on capital exports and the accompanying set of taxes. A distinction is made between a benchmark case where the government can fully tax foreign-source income and a more realistic case where the government cannot effectively tax foreign-source income.
Keywords: capital flight; investment incentives; taxation; international capital movements
JEL Codes: F21; H25; H32
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| full taxation (H29) | efficient capital allocation (G31) |
| free capital mobility (F20) | underinvestment domestically (H54) |
| free capital mobility (F20) | overinvestment abroad (F21) |
| restricting capital exports (F32) | enhance domestic investment efficiency (E22) |