Cash-Flow Taxes in an International Setting

Alan Auerbach and Michael Devereux

American Economic Journal: Economic Policy, 2018, vol. 10, issue 3, 69-94

Abstract: We model the effects of cash-flow taxes, differing according to the location of the tax, on the behavior of a multinational producing and selling in two countries with three sources of economic rent: a fixed basic-production factor (located with initial production), mobile managerial skill, and a fixed final production factor (located with consumption). In general, governments face trade-offs in choosing between alternative taxes. A source-based cash-flow tax creates welfare-impairing production and consumption distortions, but falls partially on firm owners who may be nonresident. By contrast, a destination-based cash-flow tax does not distort behavior, but falls only on domestic residents.

JEL-codes: F23 H25 H87 (search for similar items in EconPapers)
Date: 2018
Note: DOI: 10.1257/pol.20170108
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Citations: View citations in EconPapers (22)

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