Consumption and Cash-Flow Taxes in an International Setting

Alan Auerbach and Michael Devereux

No 19579, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We model the effects of consumption-type taxes which differ according to the base and location of the tax. Our model incorporates a multinational producing and selling in two countries with three sources of rent, each in a different location: a fixed basic production factor (located with initial production), mobile managerial skill, and a fixed final production factor (located with consumption). In the general case, we show that for national governments, there are trade-offs in choosing between alternative taxes. In particular, a cash-flow tax on a source basis creates welfare-impairing distortions to production and consumption, but is partially incident on the owners of domestic production who may be non-resident. By contrast, a destination-based cash-flow tax does not distort behavior, but is incident only on domestic residents. In the alternative case with the returns to the fixed factors accruing to domestic residents, the only distortion from the source-based tax is through the allocation of the mobile managerial skill. In this case, the source-based tax is also incident only on domestic residents, and is dominated by an equivalent tax on a destination basis.

JEL-codes: F23 H25 (search for similar items in EconPapers)
Date: 2013-10
Note: PE
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

Published as American Economic Journal: Economic Policy, Vol. 10, No. 3, August 2018 (pp. 69-94)

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Related works:
Working Paper: Consumption and cash-flow taxes in an international setting (2013)
Working Paper: Consumption and Cash-Flow Taxes in an International Setting (2010)
Working Paper: Consumption and cash-flow taxes in an International setting (2010)
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