Taxation of Asset Income in the Presence of a World Securites Market

20 Pages Posted: 4 Jul 2004 Last revised: 8 Sep 2008

See all articles by Roger H. Gordon

Roger H. Gordon

University of California, San Diego (UCSD) - Department of Economics; Harvard University - Department of Economics; Centre for Economic Policy Research (CEPR); National Bureau of Economic Research (NBER)

Hal R. Varian

University of California, Berkeley - School of Information; University of California, Berkeley - Operations and Information Technology Management Group; National Bureau of Economic Research (NBER)

Date Written: August 1986

Abstract

This paper shows, using a standard CAPM model of security prices in a world market,that even small countries can affect the price of domestically issued risky securities, whilelarge countries can affect the prices of all securities. As a result, countries have the incentive to set tax rates such that in equilibrium investors specialize in domestic securities, and net capital flows between countries are restricted. Each country does this to increase the utility of domestic residents, taking as given the tax policies of other governments, but the net outcome is a reduction in world efficiency and likely a reduction in the utility of all individuals.

Suggested Citation

Gordon, Roger H. and Varian, Hal R., Taxation of Asset Income in the Presence of a World Securites Market (August 1986). NBER Working Paper No. w1994. Available at SSRN: https://ssrn.com/abstract=344796

Roger H. Gordon (Contact Author)

University of California, San Diego (UCSD) - Department of Economics ( email )

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Hal R. Varian

University of California, Berkeley - School of Information ( email )

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National Bureau of Economic Research (NBER)

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