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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 concentrated 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

Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 2312.

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Date of creation: 2008
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Handle: RePEc:ces:ceswps:_2312

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Keywords: tax competition; trade unions; foreign direct investment;

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References

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Citations

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Cited by:
  1. 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.
  2. Nelly Exbrayat & Benny Geys, 2011. "Trade Integration and Business Tax Differentials: Theory and Evidence from OECD Countries," Post-Print, HAL halshs-00617043, HAL.
  3. 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).
  4. 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.
  5. Johannes Becker & Andrea Schneider, 2014. "Bidding for Firms with Unknown Characteristics," CESifo Working Paper Series 4806, CESifo Group Munich.
  6. Yuko Hashimoto & Konstantin Wacker, 2012. "The Role of Risk and Information for International Capital Flows," IMF Working Papers 12/242, International Monetary Fund.
  7. Nelly Exbrayat & Benny Geys, 2014. "Trade integration and corporate income tax differentials," International Tax and Public Finance, Springer, Springer, vol. 21(2), pages 298-323, April.
  8. Dominika Langenmayr & Andreas Haufler & Christian Josef Bauer, 2012. "Should Tax Policy Favor High- or Low-Productivity Firms?," CESifo Working Paper Series 4034, CESifo Group Munich.
  9. 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.
  10. Mittermaier, Ferdinand & Rincke, Johannes, 2013. "Do countries compensate firms for international wage differentials?," Journal of Public Economics, Elsevier, Elsevier, vol. 102(C), pages 23-36.
  11. 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.

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