ABSTRACT
This chapter explores the issues involved in expanding a study of the tax disincentives to investment to an open economy perspective. It examines the implications of alternative assumptions and modeling choices. The chapter reviews the allocation of capital in a world of autarchic economies. It outlines cross-border portfolio investments, and considers their implications for a model of capital allocation both in the absence and presence of tax evasion. Tax haven countries permit the operation of untaxed financial intermediaries within their borders. A home country offering a "tax bargain" via a low rate takes on the flavor of a "tax haven," because it benefits from the cross-border movement of taxable income rather than from the cross-border movement of real resources. Foreign corporations and foreign-controlled US corporations that are engaged in a trade or business in the US are subject to taxation according to rules that are roughly comparable to those that apply to US corporations.
