The OECD Model Tax Treaty: Tax Competition and Two-Way Capital

Ronald Davies

University of Oregon Economics Department Working Papers from University of Oregon Economics Department

Abstract: Model tax treaties do not require tax rate coordination, but do call for either credits or exemptions when calculating a multinational’s domestic taxes. This contradicts recent models with a single capital exporter where deductions are most efficient. I incorporate the fact that many nations import and export capital. With symmetric countries, credits by both is the only treaty equilibrium, resulting in Pareto optimal effective tax rates which weakly dominate the non-treaty equilibrium rates. With asymmetric countries, the treaty need not offer improvements without tax harmonization. With harmonization, it is always possible to reach efficient capital allocations while increasing both countries’ welfares only if neither uses deductions.

JEL-codes: F20 H87 (search for similar items in EconPapers)
Pages: 40
Date: 1999-10-01, Revised 2002-01-01
References: Add references at CitEc
Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:ore:uoecwp:2002-7

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