Working Paper Series, Department of Economics, Copenhagen Business School
Harry Huizinga and Søren Bo Nielsen
Must losing taxes on saving be harmful?
Abstract: Internationalization offers enhanced opportunities for
individuals to place savings abroad and evade domestic saving taxation.
This paper asks whether the concomi- tant loss of saving taxation
necessarily is harmful. To this end we construct a model of many symmetric
countries in which public goods are financed by taxes on saving and
investment. There is international cross-ownership of firms, and countries
are assumed to be unable to tax away pure profits. Countries then face an
incentive to impose a rather high investment tax also borne by foreigners.
In this setting, the loss of the saving tax instrument on account of
international tax evasion may prevent the overall saving-investment tax
wedge from becoming too high, and hence may be beneficial for moderate
preferences for public goods. A world with 'high-spending' governments, in
contrast, is made worse off by the loss of saving taxes,and hence stands to
gain from international cooperation to restore saving taxation.
Keywords: Capital income taxation; cross-ownership; coordination; (follow links to similar papers)
JEL-Codes: H21; H87; (follow links to similar papers)
29 pages, May 5, 2004
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