Citation

Discussion Paper Details

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Title: A Pecking Order Theory of Capital Inflows and International Tax Principles

Author(s): Assaf Razin, Efraim Sadka and Chi-Wa Yuen

Publication Date: April 1996

Keyword(s): Capital Inflows, Foreign Direct Investment, Foreign Portfolio Debt Investment, Foreign Portfolio Equity Investment and International Tax Principles

Programme Area(s): International Macroeconomics

Abstract: Even though financial markets today show a high degree of integration, the world capital market is still far from the textbook story of high capital mobility. The failure to have a tax scheme in which the rate of returns across countries are equated can result in inefficient capital flows across countries. This comes from the interactions of market failure and the tax system. The purpose of this paper is to highlight some key sources of market failure in the context of international capital flows and to provide guidelines for efficient tax structure in the presence of capital market imperfections. We distinguish among three main types of international capital flows: foreign portfolio debt investment (FPDI), foreign portfolio equity investment (FPEI), and foreign direct investment (FDI). The paper emphasizes the efficiency of non-uniform tax treatment of the various vehicles of international capital flows.

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Bibliographic Reference

Razin, A, Sadka, E and Yuen, C. 1996. 'A Pecking Order Theory of Capital Inflows and International Tax Principles'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=1381