Tax Principles and Capital Inflows: Is it Efficient to Tax Nonresident Income?

42 Pages Posted: 29 Apr 1998 Last revised: 30 Sep 2010

See all articles by Assaf Razin

Assaf Razin

Tel Aviv University - Eitan Berglas School of Economics; National Bureau of Economic Research (NBER); CESifo (Center for Economic Studies and Ifo Institute); Centre for Economic Policy Research (CEPR)

Efraim Sadka

Tel Aviv University - Eitan Berglas School of Economics; National Bureau of Economic Research (NBER); CESifo (Center for Economic Studies and Ifo Institute); IZA Institute of Labor Economics

Chi-Wa Yuen

The University of Hong Kong - School of Economics and Finance

Date Written: March 1996

Abstract

Even though financial markets today show a high degree of integration, the world capital market is still far from the textbook story of high capital mobility. The failure to have a tax scheme in which the rate of returns across countries are equated can result in inefficient capital flows across countries. This comes from the interactions of market failure and the tax system. The purpose of this paper is to highlight some key sources of market failure in the context of international capital flows and to provide guidelines for efficient tax structure in the presence of capital market imperfections. We distinguish among three main types of international capital flows: foreign portfolio debt investment (FPDI), foreign portfolio equity investment (FPEI), and foreign direct investment (FDI). The paper emphasizes the efficiency of a non-uniform tax treatment of the various vehicles of international capital flows.

Suggested Citation

Razin, Assaf and Sadka, Efraim and Yuen, Chi-Wa, Tax Principles and Capital Inflows: Is it Efficient to Tax Nonresident Income? (March 1996). NBER Working Paper No. w5513. Available at SSRN: https://ssrn.com/abstract=4112

Assaf Razin (Contact Author)

Tel Aviv University - Eitan Berglas School of Economics ( email )

P.O. Box 39040
Ramat Aviv, Tel Aviv, 69978
Israel
+972 3 640 7303 (Phone)
+972 3 640 9908 (Fax)

National Bureau of Economic Research (NBER) ( email )

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Cambridge, MA 02138
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CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

HOME PAGE: http://www.CESifo.de

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Efraim Sadka

Tel Aviv University - Eitan Berglas School of Economics ( email )

P.O. Box 39040
Ramat Aviv, Tel Aviv, 69978
Israel
+972 3 640 9712 (Phone)
+972 3 642 8074 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

HOME PAGE: http://www.CESifo.de

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Chi-Wa Yuen

The University of Hong Kong - School of Economics and Finance ( email )

8th Floor Kennedy Town Centre
23 Belcher's Street
Kennedy Town
Hong Kong
+8 52 2859 1051 (Phone)
+8 52 7548 1152 (Fax)

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