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The X Tax in the World Economy

68 Pages Posted: 6 Oct 2004  

David F. Bradford

Princeton University, Woodrow Wilson School; NBER; CESifo (Center for Economic Studies and Ifo Institute)

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Date Written: August 2004


This paper explores how the tax design called the X tax could alleviate the complexities and avoidance opportunities plaguing the existing U.S. system for taxing international business income. In addition to laying out the general efficiency, equity and administrative characteristics of an X tax, the paper considers, in particular, the fundamental choice between two treatments of transborder business transactions - the origin and destination principles. The destination-principle approach sidesteps the need to identify arm's length terms of transborder transactions between related business entities - the transfer-pricing problem. This problem remains in the origin-principle approach, which, however, presents fewer challenges of monitoring the flow of goods and services across borders, obviates what I call the "tourism problem" whereby people can reduce their taxes by consuming in a low-tax jurisdiction and, arguably most important, avoids transition effects associated with introduction of the tax and subsequent tax rate changes that occur in the destination approach. To obtain the advantages without the principal disadvantage, I suggest special rules for transborder transactions between related parties that would eliminate the transfer-pricing problem in an origin-based system.

Suggested Citation

Bradford, David F., The X Tax in the World Economy (August 2004). CESifo Working Paper Series No. 1264; Princeton Law & Public Affairs Paper No. 03-9. Available at SSRN: or

David F. Bradford (Contact Author)


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Princeton University, Woodrow Wilson School ( email )

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