Abstract

Tax rules are optimal in a closed-economy setting might well be sup-optimal in the presence of internationally mobile capital. Monitoring problems as well as tax competition are expected to cause difficulties with which tax authorities collect revenue from capital income. Consumption-based taxes will likely play an increasingly important role in the tax structure of a small open economy. In certain cases, local investment incentives may not be as effective in luring foreign capital as in increasing domestic investment because of the factors related to double taxation of international income. Multinational might have a strong incentive to locate technology-related activities in a tax-minimizing manner, at least at a margin.