Efficient investment incentives in the presence of capital flight

Assaf Razin*, Efraim Sadka

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

Abstract

This paper examines the efficiency of quantity restrictions on capital exports and the accompanying set of taxes. When a government can effectively tax foreign-source income, then it is not efficient to impose restrictions on capital exports and the optimal tax rates on foreign-source and domestic-source income are the same. An efficient allocation of domestic savings between foreign and domestic investment is obtained. However, when the government cannot tax foreign source income it is optimal to impose such a restriction so as to induce overinvestment in domestic capital.

Original languageEnglish
Pages (from-to)171-181
Number of pages11
JournalJournal of International Economics
Volume31
Issue number1-2
DOIs
StatePublished - Aug 1991

Funding

FundersFunder number
Foerder Institute for Economic Research
Tel Aviv University

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