Why is Capital so Immobile Internationally?: Possible Explanations and Implications for Capital Income Taxation / Roger H. Gordon, A. Lans Bovenberg.

Format:

Book

Author/Creator:

Gordon, Roger H.

Contributor:

National Bureau of Economic Research.

Bovenberg, A. Lans.

Series:

Working Paper Series (National Bureau of Economic Research) no. w4796.

NBER working paper series no. w4796

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Other Title:

Why is Capital so Immobile Internationally?

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 1994.

Summary:

The evidence on international capital immobility is extensive, ranging from the correlations between domestic savings and investment pointed out by Feldstein-Horioka (1980), to real interest differentials across countries, to the lack of international portfolio diversification. To what degree does capital immobility modify past results forecasting that small open economies should not tax savings or investment? The answer depends on the cause of this immobility. We argue that asymmetric information between countries provides the most plausible explanation for the above observations. When we examine optimal tax policy in an open economy allowing for asymmetric information, rather than simply finding that savings and investment should not be taxed, we now forecast government subsidies to foreign acquisitions of domestic firms. Some omitted factors that would argue against subsidizing foreign acquisitions are explored briefly.

Notes:

Print version record

July 1994.