The economic distortions of a border-adjusted corporate cash flow tax

McGee, M Kevin (2017): The economic distortions of a border-adjusted corporate cash flow tax.

Abstract

This paper explores the efficiency distortions under two types of destination-based corporate cash-flow taxes. Auerbach and Devereux (2015) have shown that a sales-apportioned cash-flow tax will distort consumer prices; this paper shows that those distortions are generally quite small, and are limited solely to industries in which economic profits are earned, and consump- tion is already significantly distorted. This paper also shows that a border-adjusted cash-flow tax will distort consumption decisions that cross borders, such as travel, higher education, and retirement location. In addition, it would affect labor migration decisions, especially for mi- grants who plan either to migrate only temporarily, or to remit a substantial fraction of their earning back to their home country.

• Item Type: MPRA Paper
• Language: English
• Keywords: International Corporate Taxation, Cash Flow Tax, Destination-Based Cash Flow Tax, Formula Apportionment
• Subjects: H - Public Economics > H2 - Taxation, Subsidies, and Revenue > H21 - Efficiency ; Optimal Taxation; H - Public Economics > H2 - Taxation, Subsidies, and Revenue > H25 - Business Taxes and Subsidies; H - Public Economics > H3 - Fiscal Policies and Behavior of Economic Agents > H31 - Household; H - Public Economics > H3 - Fiscal Policies and Behavior of Economic Agents > H32 - Firm

References

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