The International Transmission of Tax Policies in a Dynamic World Economy

Stephen J Turnovsky and Marcelo Bianconi

Review of International Economics, 1992, vol. 1, issue 1, 49-72

Abstract: The international transmission of tax shocks are analyzed in a two-country infinite-horizon representative agent framework. The viability of the tax regimes, arising from the arbitrage conditions characterizing equilibrium in a perfect world capital market, is emphasized. Conditions for both short-run and long-run viability are derived, and the two polar regimes of source-based and residence-based taxation are discussed. In general, the former is found more likely to satisfy the viability conditions than the latter. With equity financing, the long-run viability of residence-based taxation is likely to require the harmonization of tax and/or dividend policy. The main features of the dynamic adjustment paths following a tax increase are characterized. Copyright 1992 by Blackwell Publishing Ltd.

Date: 1992
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