Capital Flight and Tax Competition: Are There Viable Solutions to Both Problems?

Alberto Giovannini, James R. Hines, Jr.

NBER Working Paper No. 3333
Issued in April 1990
NBER Program(s):Public Economics Program

This paper discusses a model corporate tax system based on the application of the residence principle. This tax system, while preserving national sovereignties, minimizes the distortions from international capital mobility. The paper is motivated by an analysis of European capital income tax systems, and of the distortions they might give rise to as obstacles to international capital flows diminish. The alternative system we analyze has two main properties: it exploits the territoriality of law enforcement, and allows countries to set the corporate tax rate - and the extent of double taxation of corporate income - independently from their partners. The paper concludes with some suggestive evidence of the potential revenue effects among European countries of this tax system.

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Document Object Identifier (DOI): 10.3386/w3333

Published: European Financial Integration, A. Giovannini and C. Mayer, eds., Cambridge: Cambridge University Press, 1991., p. 172-210

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