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Tax Competition and Foreign Capital

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Abstract

This paper derives welfare equivalence of double taxation rules in a tax competition model with discriminatory home taxes and the ability to finance subsidiary operations with host country capital. For a more general model, we provide sufficient conditions on the number of host sectors and factors that support double-tax-rule equivalence. Examples violating these conditions help identify economic factors under which a home country has strict preferences over double taxation rules. If the home tax rate can influence host factor prices, the home country weakly prefers deductions over credits as in the pure-home-equity financing case.

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Authors and Affiliations

  1. University of Oregon, USA

    Ronald B. Davies

  2. Mendoza College of Business, University of Notre Dame, Notre Dame, IN, 46556

    Thomas A. Gresik

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  1. Ronald B. Davies
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  2. Thomas A. Gresik
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Davies, R.B., Gresik, T.A. Tax Competition and Foreign Capital. International Tax and Public Finance 10, 127–145 (2003). https://doi.org/10.1023/A:1023381705984

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