FOREIGN TAX CREDITS, THE SUPPLY OF FOREIGN-CAPITAL, AND TAX EXPORTING - A NUMERICAL GENERAL EQUILIBRIUM-MODEL OF CORPORATE-TAX REFORM IN CANADA

This paper employs a numerical general equilibrium model to emphasize the importance of tax exporting in determining the welfare effects of tax changes in open economies. Tax exporting occurs through both changes in the terms of trade and changes in the net return paid to foreign- owned capital. Results indicate that tax exporting may be as significant as efficiency in evaluating potential reforms. Moreover, efficiency effects are strongly influenced by whether foreign capital flows are modelled as responding to the gross rental on capital or to the net rental in consideration of the role of foreign tax credits. © 1991.