International tax arbitrage, tax evasion and interest parity conditions

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6 Citations (Scopus)


Using a finite-horizon general equilibrium model with uncertainty and money, we characterize situations where tax arbitrage opportunities may arise for international portfolio investors in an economy with heterogeneous capital income taxation when there is some scope to evade taxes on foreign capital income. We derive tax-modified uncovered interest parity conditions and forward rates similar to the no-tax ones, but augmented by tax-induced “risk-premium” terms; covered interest parity conditions remain unaffected by the introduction of capital income taxes, a consequence of our approach of bounding tax-based arbitrage without restricting arbitrage per se.
Original languageEnglish
Pages (from-to)413-427
Number of pages15
JournalResearch in Economics
Issue number4
Publication statusPublished - Dec 2001


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