Cash Flow Taxes in an International Setting
We model the effects of cash flow taxes on company profit which differ according to the base and location of the tax. Our model incorporates a multinational producing and selling in two countries with three sources of rent, each in a different location: a fixed basic production factor (located with initial production), mobile managerial skill, and a fixed final production factor (located with consumption). In the general case, we show that for national governments, there are trade-offs in choosing between alternative taxes. In particular, a cash-flow tax on a source basis creates welfare-impairing distortions to production and consumption, but is partially incident on the owners of domestic production who may be non-resident. By contrast, a destination-based cash-flow tax does not distort behaviour, but is incident only on domestic residents.
|Year of publication:||
|Authors:||Auerbach, Alan J. ; Devereux, Michael|
Said Business School Working Paper 2015-3
|Type of publication:||Book / Working Paper|
Auerbach, Alan J. and Devereux, Michael (2015) Cash Flow Taxes in an International Setting. Said Business School Working Paper 2015-3.