NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

The Seesaw Principle in International Tax Policy

Joel Slemrod, Carl Hansen, Roger Procter

NBER Working Paper No. 4867*
Issued in September 1994
NBER Program(s):   ITI    PE

The standard analysis of the optimal international tax policy of a small country typically assumes that the country either imports or exports capital, but does not do both. This paper considers the situation in which a small country both exports and imports capital and can alter its tax on one or the other, but not both. In each case, a 'seesaw' relationship is identified, in which the optimal tax on the income from capital exports (imports) is inversely related to the given tax rate on income from capital imports (exports). The standard results for optimal taxation of capital exports and imports are shown to be special cases of the more general seesaw principle.

*Published: Journal of Public Economics, Vol. 65, no. 2 (August 1997): 163-176.

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