Cash Flow Taxes in an International Setting

42 Pages Posted: 20 Jun 2015 Last revised: 20 Feb 2017

See all articles by Alan J. Auerbach

Alan J. Auerbach

University of California, Berkeley - Department of Economics; National Bureau of Economic Research (NBER); CESifo (Center for Economic Studies and Ifo Institute for Economic Research)

Michael P. Devereux

Centre for Business Taxation, Oxford University; CESifo (Center for Economic Studies and Ifo Institute); Institute for Fiscal Studies (IFS); Centre for Economic Policy Research (CEPR); University of Oxford - Said Business School; University of Oxford - Said Business School

Date Written: February 27, 2015

Abstract

We model the effects of cash flow taxes on company profit which differ according to the base and location of the tax. Our model incorporates a multinational producing and selling in two countries with three sources of rent, each in a different location: a fixed basic production factor (located with initial production), mobile managerial skill, and a fixed final production factor (located with consumption). In the general case, we show that for national governments, there are trade-offs in choosing between alternative taxes. In particular, a cash-flow tax on a source basis creates welfare-impairing distortions to production and consumption, but is partially incident on the owners of domestic production who may be non-resident. By contrast, a destination-based cash-flow tax does not distort behaviour, but is incident only on domestic residents.

Suggested Citation

Auerbach, Alan Jeffrey and Devereux, Michael P., Cash Flow Taxes in an International Setting (February 27, 2015). Saïd Business School WP 2015-3. Available at SSRN: https://ssrn.com/abstract=2556892 or http://dx.doi.org/10.2139/ssrn.2556892

Alan Jeffrey Auerbach (Contact Author)

University of California, Berkeley - Department of Economics ( email )

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CESifo (Center for Economic Studies and Ifo Institute for Economic Research)

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Michael P. Devereux

Centre for Business Taxation, Oxford University ( email )

Said Business School
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CESifo (Center for Economic Studies and Ifo Institute)

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Munich, DE-81679
Germany

Institute for Fiscal Studies (IFS) ( email )

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Centre for Economic Policy Research (CEPR)

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United Kingdom

University of Oxford - Said Business School ( email )

Park End Street
Oxford, OX1 1HP
Great Britain

University of Oxford - Said Business School ( email )

Park End Street
Oxford, OX1 1HP
Great Britain

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