publication . Preprint . Article . 2010

Gradualism in Tax Treaties with Irreversible Foreign Direct Investment

Richard Chisik; Ronald B. Davies;
Open Access
  • Published: 01 Aug 2010
Bilateral international tax treaties govern the host country taxation for the vast majority of the world’s foreign direct investment (FDI). Of particular interest is the fact that the tax rates used under these treaties are gradually falling although the treaties themselves do not specify any such reductions. Since there is no outside governing agency to redress treaty violations, such reductions must be both mutually beneficial and self-enforcing. Furthermore, the optimal tax rates must be less than those initially set, otherwise no reductions would be necessary. To explain such behavior, we model a two-country setting with two-way capital flows. In particular,...
free text keywords: Foreign Direct Investment, Tax Treaties, Multinational Enterprise, Gradualism, Irreversibilities, Dynamic Games., jel:F21, jel:F23, jel:F13, jel:C73, Economics and Econometrics, Double taxation, Economics, Optimal tax, Tax reform, Indirect tax, Tax credit, State income tax, Value-added tax, International taxation, Microeconomics
Related Organizations

Aizenman, Joshua (1996), "Foreign direct investment as a commitment mechanism in the presence of managed trade," International Economic Journal, 10:4, pp. 1-28.

Ausubel, L., and R. Deneckere, (1987) “One is Almost Enough for Monopoly,” Rand Journal of Economics 18, Summer, 1987, pp. 255-274. [OpenAIRE]

Benhabib, J., and R. Radner, (1992) “The Joint Exploitation of a Productive Asset: a Gametheoretic Approach,” Economic Theory 2, 1992, pp.155-190.

Blonigen, Bruce and Ronald B. Davies (2000), "The effect of bilateral tax treaties on U.S. FDI activity," NBER Working Paper Series, No. 7929, Cambridge, MA. [OpenAIRE]

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