Working Paper: NBER ID: w3333
Authors: Alberto Giovannini; James R. Hines Jr.
Abstract: This paper discusses a model corporate tax system based on the application of the residence principle. This tax system, while preserving national sovereignties, minimizes the distortions from international capital mobility. The paper is motivated by an analysis of European capital income tax systems, and of the distortions they might give rise to as obstacles to international capital flows diminish. The alternative system we analyze has two main properties: it exploits the territoriality of law enforcement, and allows countries to set the corporate tax rate - and the extent of double taxation of corporate income - independently from their partners. The paper concludes with some suggestive evidence of the potential revenue effects among European countries of this tax system.
Keywords: capital flight; tax competition; corporate taxation; European tax systems
JEL Codes: H25; H87
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Implementing a residence-based corporate tax system (H24) | Minimize distortions arising from international capital mobility (F32) |
| Current tax systems in Europe (H26) | Level of distortions in capital mobility (F20) |
| Implementing a residence-based corporate tax system (H24) | More efficient allocation of capital (G31) |
| Implementing a residence-based corporate tax system (H24) | Increase tax revenues (H29) |