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Risk diversification and tax competition: The influence of risk correlations and tax provisions on tax competition

Author

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  • Berndt, Markus
  • Reichl, Bettina

Abstract

From standard-portfolio-models the authors derive demand elasticities for risky assets, and combine the results with a simple non-cooperative model of tax competition between capital importing countries. They find that tax rates resulting from tax competition depend heavily on the correlations of capital market indices. If investment alternatives are not correlated, the outcome of both tax competition and a cooperative solution of tax harmonization are identical. The results suggest regional cooperation among capital importing countries. Compared to the exemption method provisions like tax sparing aggravates the harms of tax competition.

Suggested Citation

  • Berndt, Markus & Reichl, Bettina, 2000. "Risk diversification and tax competition: The influence of risk correlations and tax provisions on tax competition," HWWA Discussion Papers 104, Hamburg Institute of International Economics (HWWA).
    • Handle: RePEc:zbw:hwwadp:26215
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    JEL classification:

    • G1 - Financial Economics - - General Financial Markets
    • H3 - Public Economics - - Fiscal Policies and Behavior of Economic Agents

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