Rent Taxation when Cost Tranfers are Possible, but Costly

H.E. Halvorsen and Diderik Lund

No 20/1998, Memorandum from Oslo University, Department of Economics

Abstract: While rent taxation in some theories is neutral, and the tax rate could not be set to one hundred percent to minimize the need for distortionary taxes, this does not occur in practice. An important reason for this is the transfer incentives that would result. Monitoring to prevent transfer pricing is difficult, in particular on the cost side. For dorporations, monitoring implies that both transfer pricing and real transfers will be costly. Assuming a convex cost function for cost transfers, it is shown that the optimal tax system combines a cash flow tax with a royalty, i.e., a tax on gross revenues.

Keywords: RENT; TAXATION; PRICING; INCOME (search for similar items in EconPapers)
JEL-codes: H21 H22 (search for similar items in EconPapers)
Pages: 18 pages
Date: 1998
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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