STOCK INDEX FUTURES - IMPLICATIONS FOR INTERNATIONAL CAPITAL TAXATION

This paper develops a model of corporate capital structure and investo r portfolio choice in an international setting. The model's key featur e is the stock index futures contract. Investors and companies special ize in securities based on tax and currency appreciation rates. Despit e this specialization, investors achieve complete diversification thro ugh futures positions. Nations should tax interest and capital gains e qually and should not tax corporate income. This contrasts with the re sult when futures do not exist, in which foreigners' desire for divers ification provides countries with an incentive to use tax policy to re duce foreign ownership of domestic equity to acquire monopoly rents. ( JEL G15). Copyright (C) 1996 Elsevier Science Ltd