Pareto-Efficient International Taxation

Michael Keen and David Wildasin

American Economic Review, 2004, vol. 94, issue 1, 259-275

Abstract: This paper analyzes Pareto-efficient international tax regimes. Because every country faces its own national budget constraint, the Diamond-Mirrlees production-efficiency theorem, which underlies key tenets of policy advice in international taxation - the desirability of destination basis for commodity taxation, of the residence principle for capital income taxation, and of free trade - does not apply. The paper establishes conditions - relating to the availability of explicit or implicit devices for reallocating tax revenues across countries - under which production efficiency is nevertheless desirable, and characterizes the precise ways in which Pareto-efficient international taxation may require violation of established tenets.

Date: 2004
Note: DOI: 10.1257/000282804322970797
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