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Tax competition and the international distribution of firm ownership: an invariance result

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Author Info

  • Ben Ferrett

    ()

  • Ian Wooton

    ()

Abstract

Intuition suggests that the international distribution of firm ownership ought to affect tax/subsidy competition for mobile plants. One might expect that the greater the share of a firm owned within a potential host country that offers a relatively profitable production location, the more that nation will be prepared to pay to attract the firm's production facility. We show this intuition to be false. In equilibrium, both plant location and the tax/subsidy offers are independent of the international distribution of ownership. The reason is that the tax/subsidy competition equalises the firm's post-tax profits across countries, making owners of capital indifferent towards the location of production.

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File URL: http://hdl.handle.net/10.1007/s10797-009-9126-z
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Bibliographic Info

Article provided by Springer in its journal International Tax and Public Finance.

Volume (Year): 17 (2010)
Issue (Month): 5 (October)
Pages: 518-531

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Handle: RePEc:kap:itaxpf:v:17:y:2010:i:5:p:518-531

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Web page: http://www.springerlink.com/link.asp?id=102915

Related research

Keywords: Tax/subsidy competition; Foreign direct investment; International distribution of firm ownership; F12; F23; H25; H73;

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References

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  1. Kozul-Wright, Richard & Rowthorn, Robert, 1998. "Spoilt for Choice? Multinational Corporations and the Geography of International Production," Oxford Review of Economic Policy, Oxford University Press, vol. 14(2), pages 74-92, Summer.
  2. Andreas Haufler & Ian Wooton, . "Country Size and Tax Competition for Foreign Direct Investment," Working Papers 9702, Business School - Economics, University of Glasgow.
  3. Haufler, Andreas & Wooton, Ian, 1999. "Country size and tax competition for foreign direct investment," Munich Reprints in Economics 20408, University of Munich, Department of Economics.
  4. Fumagalli, Chiara, 2003. "On the welfare effects of competition for foreign direct investments," European Economic Review, Elsevier, vol. 47(6), pages 963-983, December.
  5. Haaparanta, Pertti, 1996. "Competition for foreign direct investments," Journal of Public Economics, Elsevier, vol. 63(1), pages 141-153, December.
  6. Michael Keen, 1993. "The welfare economics of tax co-ordination in the European Community : a survey," Fiscal Studies, Institute for Fiscal Studies, vol. 14(2), pages 15-36, February.
  7. Olsen, Trond E. & Osmundsen, Petter, 2003. "Spillovers and international competition for investments," Journal of International Economics, Elsevier, vol. 59(1), pages 211-238, January.
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Citations

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Cited by:
  1. Ben Ferrett & Ian Wooton, 2013. "Fiscal Competition for FDI when Bidding is Costly," Discussion Paper Series 2013_04, Department of Economics, Loughborough University, revised Jun 2013.
  2. Oscar Amerighi & Giuseppe De Feo, 2013. "Competition for FDI and profit shifting: On the effects of subsidies and tax breaks," DEM Working Papers Series 056, University of Pavia, Department of Economics and Management.
  3. O. Amerighi & G. De Feo, 2009. "Is Competition for FDI Bad for Regional Welfare?," Working Papers 680, Dipartimento Scienze Economiche, Universita' di Bologna.
  4. Mizuno, Nobuhiro, 2013. "Political Structure as a Legacy of Indirect Colonial Rule: Bargaining between National Governments and Rural Elites in Africa," MPRA Paper 48771, University Library of Munich, Germany.

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