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International Capital Mobility and Tax Evasion

Alberto Giovannini

NBER Working Paper No. 2460
Issued in December 1987
NBER Program(s):The International Trade and Investment Program, The International Finance and Macroeconomics Program

This paper studies the welfare effects of international investment to evade domestic taxes on domestic investment income. Capital mobility for tax evasion eliminates distortions in the intertemporal allocation of consumption, but introduces distortions in domestic production. Conversely, a regime where residents pay taxes on all investment income, domestic and foreign, introduces distortions in intertemporal consumption allocation, but leaves domestic production distortion-free. The relative magnitude of the interest elasticity of savings and the interest elasticity of domestic investment determines the welfare effects of capital movements for the purpose tax evasion.

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Document Object Identifier (DOI): 10.3386/w2460

Published: "International Capital Mobility and Tax Avoidance." Banca Nazionale del Lavoro Quarterly Review, No. 177, pp. 197-223, June 1991.

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