The Economic Distortions of a Border-Adjusted Corporate Cash Flow Tax

13 Pages Posted: 3 Apr 2017 Last revised: 7 Apr 2017

See all articles by M. Kevin McGee

M. Kevin McGee

University of Wisconsin - Oshkosh

Date Written: April 5, 2017


This paper explores the efficiency distortions under two types of destination-based corporate cash-flow taxes. Auerbach and Devereux (2015) have shown that a sales-apportioned cash-flow tax will distort consumer prices; this paper shows that those distortions are generally quite small, and are limited solely to industries in which economic profits are earned, and consumption is already significantly distorted. This paper also shows that a border-adjusted cash-flow tax will distort consumption decisions that cross borders, such as travel, higher education, and retirement location. In addition, it would affect labor migration decisions, especially for migrants who plan either to migrate only temporarily, or to remit a substantial fraction of their earning back to their home country.

Keywords: International Corporate Taxation, Cash Flow Tax, Destination-Based Cash Flow Tax, Formula Apportionment

JEL Classification: H21, H25, H31, H32

Suggested Citation

McGee, M. Kevin, The Economic Distortions of a Border-Adjusted Corporate Cash Flow Tax (April 5, 2017). Available at SSRN: or

M. Kevin McGee (Contact Author)

University of Wisconsin - Oshkosh ( email )

800 Algoma Blvd
Oshkosh, WI WI 54901
United States

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