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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. Nelly Exbrayat & Benny Geys, 2011. "Trade Integration and Business Tax Differentials : Theory and Evidence from OECD Countries," Working Papers 1123, Groupe d'Analyse et de Théorie Economique (GATE), Centre national de la recherche scientifique (CNRS), Université Lyon 2, Ecole Normale Supérieure.
  2. 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.
  3. Mittermaier, Ferdinand & Rincke, Johannes, 2013. "Do countries compensate firms for international wage differentials?," Journal of Public Economics, Elsevier, vol. 102(C), pages 23-36.
  4. G. Cardullo & M. Conti & G. 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.
  5. 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.
  6. Rocha-Akis, Silvia & Schöb, Ronnie, 2009. "Welfare policy in the presence of unionised labour and internationally mobile firms," Discussion Papers 2009/14, Free University Berlin, School of Business & Economics.
  7. Nelly Exbrayat & Benny Geys, 2014. "Trade integration and corporate income tax differentials," International Tax and Public Finance, Springer, vol. 21(2), pages 298-323, April.
  8. Yuko Hashimoto & Konstantin Wacker, 2012. "The Role of Risk and Information for International Capital Flows," IMF Working Papers 12/242, International Monetary Fund.
  9. 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).
  10. 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).
  11. Johannes Becker & Andrea Schneider, 2014. "Bidding for Firms with Unknown Characteristics," CESifo Working Paper Series 4806, CESifo Group Munich.

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