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Unionisation Triggers Tax Incentives to Attract Foreign Direct Investment

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  • Andreas Haufler
  • Ferdinand Mittermaier

Abstract

This paper analyses tax competition between a unionised and a non-unionised country for the location of an outside firm. We show that unionisation offers an extra incentive for the government to attract a foreign competitor to a concen- trated domestic market, in order to affect the behaviour of the domestic union. This results in the unionised country's government offering a tax discount (or a subsidy premium) to the outside firm in excess of what is needed to compensate the investor for the higher union wage. In equilibrium, therefore, the unionised country can attract the outside firm even if it has other location disadvantages, such as a smaller home market.

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Bibliographic Info

Article provided by Royal Economic Society in its journal The Economic Journal.

Volume (Year): 121 (2011)
Issue (Month): 553 (06)
Pages: 793-818

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Handle: RePEc:ecj:econjl:v:121:y:2011:i:553:p:793-818

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References

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Citations

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Cited by:
  1. Silvia Rocha-Akis & Ronnie Schöb, 2010. "Welfare Policy in the Presence of Unionised Labour and Internationally Mobile Firms," CESifo Working Paper Series 3032, CESifo Group Munich.
  2. Dominika Langenmayr & Andreas Haufler & Christian J. Bauer, 2012. "Should tax policy favor high- or low-productivity firms?," Working Papers 130, Bavarian Graduate Program in Economics (BGPE).
  3. Silvia Rocha-Akis, 2012. "The Pain and Gain of Offshoring: The Effects of Tax Progression in a Segmented Labour Market," CESifo Working Paper Series 3739, CESifo Group Munich.
  4. Nelly Exbrayat & Benny Geys, 2011. "Trade Integration and Business Tax Differentials: Theory and Evidence from OECD Countries," Post-Print halshs-00617043, HAL.
  5. Exbrayat, Nelly & Geys, Benny, 2012. "Trade integration and business tax differentials: Evidence from OECD countries," Discussion Papers, Research Professorship & Project "The Future of Fiscal Federalism" SP II 2012-110, Social Science Research Center Berlin (WZB).
  6. G. Cardullo & M. Conti & Giovanni Sulis, 2012. "Sunk Capital, Unions and the Hold-Up Problem: Theory and Evidence from Sectoral Data," Working Paper CRENoS 201226, Centre for North South Economic Research, University of Cagliari and Sassari, Sardinia.

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