TY  - JOUR
AU  - Gordon,Roger H.
AU  - Bovenberg,A. Lans
TI  - Why is Capital so Immobile Internationally?: Possible Explanations and  Implications for Capital Income Taxation
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 4796
PY  - 1994
Y2  - July 1994
UR  - http://www.nber.org/papers/w4796
L1  - http://www.nber.org/papers/w4796.pdf
N1  - Author contact info:
Roger H. Gordon
Department of Economics 0508
University of California, San Diego
9500 Gilman Drive, Dept. 0508
La Jolla, CA 92093
Tel: 858/534-4828
Fax: 858/534-7040
E-Mail: rogordon@ucsd.edu
AB  - The evidence on international capital immobility is extensive, ranging from the correlations between domestic savings and investment pointed out by Feldstein-Horioka (1980), to real interest differentials across countries, to the lack of international portfolio diversification.  To what degree does capital immobility modify past results forecasting that small open economies should not tax savings or investment?  The answer depends on the cause of this immobility. We argue that asymmetric information between countries provides the most plausible explanation for the above observations.  When we examine optimal tax policy in an open economy allowing for asymmetric information, rather than simply finding that savings and investment should not be taxed, we now forecast government subsidies to foreign acquisitions of domestic firms.  Some omitted factors that would argue against subsidizing foreign acquisitions are explored briefly.
ER  -