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Capital income and profit taxation with foreign ownership of firms

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  • Huizinga, Harry
  • Nielsen, Soren Bo
Abstract
This paper establishes in the simplest possible way optimal rules for capital income and profits taxation in the open economy with or without foreign ownership of doemstic firms. We show that if there are constraints on the feasibility of profits taxation, both saving and investment taxes generally enter the optimal tax package. If instead profits can be fully taxed, then source-based investment taxes vanish. If domestic firms are in part owned by foreigners, then source-based investment taxes can be used to shift income away from these to domestic citizens and they may even be used to finance lump sum transfers to domestic residents.
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Suggested Citation

  • Huizinga, Harry & Nielsen, Soren Bo, 1997. "Capital income and profit taxation with foreign ownership of firms," Journal of International Economics, Elsevier, vol. 42(1-2), pages 149-165, February.
    • Handle: RePEc:eee:inecon:v:42:y:1997:i:1-2:p:149-165
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    References listed on IDEAS

    as
    1. J. E. Stiglitz & P. Dasgupta, 1971. "Differential Taxation, Public Goods, and Economic Efficiency," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 38(2), pages 151-174.
    2. Jack Mintz & Henry Tulkens, 2006. "Optimality Properties of Alternative Systems of Taxation of Foreign Capital Income," Springer Books, in: Parkash Chander & Jacques Drèze & C. Knox Lovell & Jack Mintz (ed.), Public goods, environmental externalities and fiscal competition, chapter 0, pages 507-532, Springer.
    3. Roger H. Gordon & Jeffrey K. MacKie-Mason, 1995. "Why Is There Corporate Taxation in a Small Open Economy? The Role of Transfer Pricing and Income Shifting," NBER Chapters, in: The Effects of Taxation on Multinational Corporations, pages 67-94, National Bureau of Economic Research, Inc.
    4. Stiglitz, Joseph E., 1987. "Pareto efficient and optimal taxation and the new new welfare economics," Handbook of Public Economics, in: A. J. Auerbach & M. Feldstein (ed.), Handbook of Public Economics, edition 1, volume 2, chapter 15, pages 991-1042, Elsevier.
    5. Huizinga, Harry, 1995. "The optimal taxation of savings and investment in an open economy," Economics Letters, Elsevier, vol. 47(1), pages 59-62, January.
    6. Jacob Frenkel & Assaf Razin & Efraim Sadka, 1991. "International Taxation in an Integrated World," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262061430, April.
    7. Bruce, N., 1992. "Why Are There Foreign Tax Credits," Working Papers 92-08, University of Washington, Department of Economics.
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    9. Partha Dasgupta & Joseph Stiglitz, 1972. "On Optimal Taxation and Public Production," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 39(1), pages 87-103.
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    11. Christopher C. Findlay, 1986. "Optimal Taxation of International Income Flows," The Economic Record, The Economic Society of Australia, vol. 62(2), pages 208-214, June.
    12. Gordon, Roger H, 1986. "Taxation of Investment and Savings in a World Economy," American Economic Review, American Economic Association, vol. 76(5), pages 1086-1102, December.
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