Abstract
This article contributes to the current debate, particularly important in an EC context, as to the efficacy of source-based rather than residency-based taxation of investment income in open economies, and it does this by examining the theoretically extreme cases. Evidence suggests that tax incentives have large effects on international capital flows. In many countries, the purchase of foreign assets is an easy way to avoid taxes. In the main, the costs of tax-avoiding capital flows depends upon the relative interest elasticity of domestic investment with respect to savings.
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