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Pareto-Efficient International Taxation

Michael Keen and David Wildasin
The American Economic Review
Vol. 94, No. 1 (Mar., 2004), pp. 259-275
Stable URL: http://www.jstor.org/stable/3592778
Page Count: 17
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Pareto-Efficient International Taxation
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Abstract

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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