Fiscal Competition for FDI when Bidding is Costly
AbstractWe introduce bidding costs into a standard model of tax/subsidy competition between two potential host countries to attract the plant of a monopoly firm. Such a bidding cost, even if it is infinitesimal, qualitatively alters the resulting equilibrium. At most one country offers fiscal inducements to the firm, and this attenuates the familiar "race to the bottom" in corporate taxes. In general, the successful host country benefits from the resulting absence of active tax/subsidy competition, at the expense of the owners of the firm in the rest of the world.
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Bibliographic InfoArticle provided by AccessEcon in its journal Economics Bulletin.
Volume (Year): 33 (2013)
Issue (Month): 3 ()
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tax/subsidy competition; foreign direct investment; bidding cost; race to the bottom.;
Other versions of this item:
- Ben Ferrett & Ian Wooton, 2013. "Fiscal Competition for FDI when Bidding is Costly," Discussion Paper Series, Department of Economics, Loughborough University 2013_04, Department of Economics, Loughborough University, revised Jun 2013.
- F2 - International Economics - - International Factor Movements and International Business
- H2 - Public Economics - - Taxation, Subsidies, and Revenue
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