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Foreign direct investment under fiscal interdependence when policy is set unilaterally

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Listed:
  • Luis Gautier

    (University of Texas at Tyler)

Abstract

This paper develops a partial equilibrium model of foreign direct investment to analyze the potentially opposing interests between a host and foreign country. The two countries are fiscally interdependent and the fiscal variable is set unilaterally by the foreign country. The analysis indicates that fiscal independence is welfare-enhancing, particularly in the case where the outflow of FDI is large. The case where a lump-sum subsidy is set to address the exit of firms indicates that the need for subsidy payments subside under fiscal independence.

Suggested Citation

  • Luis Gautier, 2017. "Foreign direct investment under fiscal interdependence when policy is set unilaterally," International Economics and Economic Policy, Springer, vol. 14(4), pages 579-599, October.
    • Handle: RePEc:kap:iecepo:v:14:y:2017:i:4:d:10.1007_s10368-016-0358-y
    DOI: 10.1007/s10368-016-0358-y
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