Working Paper: NBER ID: w4867
Authors: Joel Slemrod; Carl Hansen; Roger Procter
Abstract: The standard analysis of the optimal international tax policy of a small country typically assumes that the country either imports or exports capital, but does not do both. This paper considers the situation in which a small country both exports and imports capital and can alter its tax on one or the other, but not both. In each case, a 'seesaw' relationship is identified, in which the optimal tax on the income from capital exports (imports) is inversely related to the given tax rate on income from capital imports (exports). The standard results for optimal taxation of capital exports and imports are shown to be special cases of the more general seesaw principle.
Keywords: international tax policy; capital exports; capital imports; optimal taxation
JEL Codes: H25; F21
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Higher taxes on capital exports (F38) | Lower taxes on capital imports (F21) |
| Lower taxes on capital imports (F21) | Higher taxes on capital exports (F38) |
| Suboptimal tax on capital imports (F38) | Imposing a suboptimal tax on capital exports offsets welfare losses (H21) |
| Changes in capital exports (F32) | Influence effective tax burden on capital imports (F38) |