Gains from International Factor Movements without Lump-Sum Compensation: Taxation by Location versus Nationality

Richard Brecher and Ehsan Choudhri ()

Canadian Journal of Economics, 1990, vol. 23, issue 1, 44-59

Abstract: This paper questions the feasibility of Pareto-type gains from international factor movements, without lump-sum compensations, when taxes (subsidies) on factors and consumers located within the same country cannot discriminate on the basis of national origin. As the analysis shows, no incentive-compatible scheme of taxation based on location (versus nationality) is a feasible mechanism for ensuring that free factor mobility always raises every home nation's welfare above the autarkic level. This result introduces a note of pessimism about the possibility of avoiding distributional problems associated with factor movements between countries.

Date: 1990
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