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Abstract:
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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.
JEL-Classifcation: H87, H21
Keywords: Capital income taxation, cross-ownership, coordination |
This work is licensed under a Creative Commons License.
