Resolving the Credibility Problem of an Honest Government: A Case for Foreign Investment Subsidy
AbstractWe develop a simple model of direct foreign investment where the host country government cannot credibly signal its honest intention such as to stick to the contracted tax rate. The foreign firm has some prior belief regarding the ex post discretionary policies of the local government. Since the investment is completely irreversible, such a belief pattern might not induce the firm to invest in a country which badly needs it. It is shown that the host government can design a subsidy scheme which might attract foreign investment by removing the credibility problem. Copyright 1999 by Blackwell Publishing Ltd.
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Bibliographic InfoArticle provided by Wiley Blackwell in its journal Review of International Economics.
Volume (Year): 7 (1999)
Issue (Month): 4 (November)
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Web page: http://www.blackwellpublishing.com/journal.asp?ref=0965-7576
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- Alexander Haupt & Tim Krieger, 2009.
"The role of mobility in tax and subsidy competition,"
2009/37, Institut d'Economia de Barcelona (IEB).
- Alexander Haupt & Tim Krieger, 2009. "The Role of Mobility in Tax and Subsidy Competition," CESifo Working Paper Series 2555, CESifo Group Munich.
- Haupt, Alexander & Krieger, Tim, 2013. "The role of mobility in tax and subsidy competition," Discussion Paper Series 2013-02, University of Freiburg, Wilfried Guth Endowed Chair for Constitutional Political Economy and Competition Policy.
- Alexander Haupt & Tim Krieger, 2009. "The role of mobility in tax and subsidy competition," Working Papers CIE 21, University of Paderborn, CIE Center for International Economics.
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