Consumption and cash-flow taxes in an international setting

Auerbach, Alan J. and Devereux, Michael (2013) Consumption and cash-flow taxes in an international setting. Centre for Business Taxation Working Paper.

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We model the effects of consumption-type taxes 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 behavior, but is incident only on domestic residents. In the alternative case with the returns to the fixed factors accruing to domestic residents, the only distortion from the source-based tax is through the allocation of the mobile managerial skill. In this case, the source-based tax is also incident only on domestic residents, and is dominated by an equivalent tax on a destination basis.

NB An earlier version of this paper was originally published in this working paper series as WP 12/14.

Item Type: Other Working Paper
Centre: Oxford University Centre for Business Taxation > CBT Working Papers
Date Deposited: 13 Dec 2013 14:20
Last Modified: 26 Oct 2018 15:43

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