Capital Mobility and Source-Based Taxation of Capital Income in Small Open Economies

• Published in: International tax and public finance 2006-05, Vol.13 (2), p.269-294
• Main Author: Zodrow, George R
• Format: Article
• Language: English
• Subjects: capital income taxation; Capital mobility; Capital movement; Capital returns; Competition; Consumption; consumption tax; Consumption taxes; Corporate income tax; Corporate taxes; Developing countries; dual income tax; Economic models; Economic rent; Fiscal policy; Globalization; Income shifting; income tax; international taxation; LDCs; Multinational corporations; Open economies; Personal income; Public finance; Studies; Tax competition; Tax rates; Taxation; Transfer pricing
• ISSN: 0927-5940; 1573-6970
• DOI: 10.1007/s10797-006-4862-9

This paper examines the taxation of capital income in a small open economy that faces a highly elastic supply of internationally mobile capital and increasing tax competition. The analysis considers a wide variety of additional factors that affect the determination of capital income taxation policy, including the desire to tax economic rents earned by foreign and domestic firms, the desire to take advantage of any treasury transfer effects, the role played by transfer pricing and other financial accounting manipulations by foreign multinationals, the need for a backstop to the personal income tax and various political concerns. The paper evaluates several potential income and consumption-based tax reforms in this context. Copyright Springer Science + Business Media, Inc. 2006