American Economic Review: Vol. 94 No. 1 (March 2004)
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Pareto-Efficient International Taxation
Keen, Michael, and David Wildasin. 2004. "Pareto-Efficient International Taxation." American Economic Review, 94(1): 259-275.
This paper analyzes Pareto-efficient international tax regimes. Because every country faces its own national budget constraint, the Diamond-Mirrlees production-efficiency theorem, which underlies key tenets of policy advice in international taxation - the desirability of destination basis for commodity taxation, of the residence principle for capital income taxation, and of free trade - does not apply. The paper establishes conditions - relating to the availability of explicit or implicit devices for reallocating tax revenues across countries - under which production efficiency is nevertheless desirable, and characterizes the precise ways in which Pareto-efficient international taxation may require violation of established tenets.
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