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Must losing taxes on saving be harmful?

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  • Huizinga, Harry

    (Department of Economics, Copenhagen Business School)

  • Nielsen, Søren Bo

    (Department of Economics, Copenhagen Business School)

Abstract

Internationalization offers enhanced opportunities for individuals to place savings abroad and evade domestic saving taxation. This paper asks whether the concomi- tant loss of saving taxation necessarily is harmful. To this end we construct a model of many symmetric countries in which public goods are financed by taxes on saving and investment. There is international cross-ownership of firms, and countries are assumed to be unable to tax away pure profits. Countries then face an incentive to impose a rather high investment tax also borne by foreigners. In this setting, the loss of the saving tax instrument on account of international tax evasion may prevent the overall saving-investment tax wedge from becoming too high, and hence may be beneficial for moderate preferences for public goods. A world with 'high-spending' governments, in contrast, is made worse off by the loss of saving taxes,and hence stands to gain from international cooperation to restore saving taxation.

Suggested Citation

  • Huizinga, Harry & Nielsen, Søren Bo, 2004. "Must losing taxes on saving be harmful?," Working Papers 15-2004, Copenhagen Business School, Department of Economics.
    • Handle: RePEc:hhs:cbsnow:2004_015
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    Cited by:

    1. Becker, Johannes & Wilson, John D., 2023. "Tax competition with two tax instruments — and tax base erosion," Journal of Public Economics, Elsevier, vol. 225(C).
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    3. Akira Yakita, 2014. "Capital Tax Competition and Cooperation with Endogenous Capital Formation," Review of International Economics, Wiley Blackwell, vol. 22(3), pages 459-468, August.
    4. Michael Keen & Kai A. Konrad, 2012. "International Tax Competition and Coordination," Working Papers international_tax_competi, Max Planck Institute for Tax Law and Public Finance.
    5. Johannes Becker & John D. Wilson, 2021. "Tax Competition with Two Tax Instruments - and Tax Evasion," CESifo Working Paper Series 9318, CESifo.

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    More about this item

    Keywords

    Capital income taxation; cross-ownership; coordination;
    All these keywords.

    JEL classification:

    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H87 - Public Economics - - Miscellaneous Issues - - - International Fiscal Issues; International Public Goods

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