Capital income and profit taxation with foreign ownership of firms

Can Capital Income Taxes Survive? And Should They?

“…There are many potential sources of location-specific rents such as the existence of natural resources, an attractive infrastructure, availability of a pool of qualified labour and, more generally, the existence of 'agglomeration forces' (to be elaborated in section 1.3.2). Moreover, when location-specific rents co-exist with foreign ownership of (part of) the domestic capital stock, the incentive for national governments to levy source-based capital taxes is strengthened, since they can thereby export part of the domestic tax burden to foreigners whose votes do not count in the domestic political process (see Huizinga and Nielsen (1997)). Since globalisation implies increased international cross-hauling of investment and a resulting increase in foreign ownership shares, this may be an important reason why governments choose to maintain source-based capital income taxes, as suggested by Mintz (1994).…”

Efficiency of capital taxation in an open economy: tax competition versus tax exportation

“…2 Huizinga and Nielsen (1997) and Lee (1997) have shown that foreign ownership of profits and/or capital may lead to excessive taxation. In a tax competition model calibrated to the US and to European regions, Sørensen (2004) shows that foreign ownership has important implications for capital taxation.…”

Tax incidence, majority voting and capital market integration

“…One widely used coding 15 , originally due to Grilli and Milesi-Ferretti (1995) is a binary one, with a value of 1 indicating significant restrictions on the capital account. This coding also has three binary variables indicating the presence of restrictions on the current account: multiple exchange rates, restrictions on current account transactions, and surrender of export proceeds.…”

“…First, there are some papers which show that equilibrium taxes may rise in some or all countries following CMI (for instance, DePater and Myers (1994), Wilson (1987), Huizinga and Nielsen (1997), Noiset(1995) and Wooders, Zissimos and Dhillon(2001)). However, in these models, the rise in taxes is generated by some modification of the economic environment relative to the standard tax competition model, rather than any interaction between tax incidence and the political process.…”