Dynamic inconsistency and non-preferential taxation of foreign capital

Kaushal Kishore and Santanu Roy

Economics Letters, 2014, vol. 124, issue 1, 88-92

Abstract: When capital is sunk after it is invested, a host government facing heterogeneous foreign investors has a strong incentive to reduce preferential taxes over time in order to attract less eager investors while fully expropriating past investors. This induces investors to wait rather than invest in the initial period, and leads to loss of tax revenue. This dynamic inconsistency problem is resolved if the host government commits to non-preferential taxation in each period even if it does not commit to future tax rates.

Keywords: Dynamic inconsistency; Foreign investment; Non-preferential taxation (search for similar items in EconPapers)
JEL-codes: F21 H21 H25 H87 (search for similar items in EconPapers)
Date: 2014
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0165176514001554
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:ecolet:v:124:y:2014:i:1:p:88-92

DOI: 10.1016/j.econlet.2014.04.027

Access Statistics for this article

Economics Letters is currently edited by Economics Letters Editorial Office

More articles in Economics Letters from Elsevier
Bibliographic data for series maintained by Catherine Liu ().