Tariff Jumping Foreign Investment and Capital Taxation

12 Pages Posted: 20 Feb 2001

See all articles by Alfons J. Weichenrieder

Alfons J. Weichenrieder

Goethe University Frankfurt - Department of Applied Econometrics and International Economic Policy; Vienna University of Economics and Business; CESifo (Center for Economic Studies and Ifo Institute)

Vivek H. Dehejia

Carleton University - Norman Paterson School of International Affairs; Centre for Economic Policy Research (CEPR); CESifo (Center for Economic Studies and Ifo Institute)

Date Written: March 2000

Abstract

This paper reconsiders the welfare effects of; tariff jumping; direct investment if mobile capital is subjected to taxation. In contrast to the conventional wisdom, the receiving country may in this case gain from the incremental inflow of capital, as this diverts tax revenues from the rest of the world. In the case of perfect capital mobility, this possibility becomes a certainty. Our argument provides one rationale for a small country to levy a distorting tariff in a second best world in which capital taxes already exist.

Keywords: Capital taxation, tariff jumping, foreign direct investment

JEL Classification: F11, F13, F21, H20

Suggested Citation

Weichenrieder, Alfons J. and Dehejia, Vivek H., Tariff Jumping Foreign Investment and Capital Taxation (March 2000). CESifo Working Paper Series No. 260. Available at SSRN: https://ssrn.com/abstract=260744

Alfons J. Weichenrieder (Contact Author)

Goethe University Frankfurt - Department of Applied Econometrics and International Economic Policy ( email )

United States

HOME PAGE: http://www.uni-frankfurt.de/fb02/weichenrieder/

Vienna University of Economics and Business ( email )

Welthandelsplatz 1
Vienna, Wien 1020
Austria

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

Poschinger Str. 5
Munich, DE-81679
Germany

Vivek H. Dehejia

Carleton University - Norman Paterson School of International Affairs ( email )

1125 Colonel By Drive
Ottawa, Ontario K1S 5B6
Canada
613-520-6661 (Phone)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

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