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A Race beyond the Bottom: The Nature of Bidding for a Firm

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  • Taiji Furusawa
  • Kazumi Hori
  • Ian Wooton

Abstract

We examine how the bidding environment may affect the outcome of tax competition between two countries (or two regions) in attracting a firm’s foreign direct investment (FDI).We compare the equilibrium location choice and payoffs from an English auction, with both complete and incomplete information, relative to those in the traditional setting of a sealed-bid first-price auction. We find that an English auction leads to more aggressive bidding in “race beyond the bottom,” where the nations may bid beyond their own valuations of the FDI. We also discuss the roles of auction protocol and information asymmetry on the auction outcome.

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File URL: http://www.cesifo-group.de/portal/page/portal/DocBase_Content/WP/WP-CESifo_Working_Papers/wp-cesifo-2010/wp-cesifo-2010-05/cesifo1_wp3049.pdf
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Bibliographic Info

Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 3049.

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Date of creation: 2010
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Handle: RePEc:ces:ceswps:_3049

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Related research

Keywords: tax competition; foreign direct investment; international ownership; English auction; information asymmetry;

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References

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  1. Scoones, David & Wen, Jean-Francois, 2001. " Common and Private Values of the Firm in Tax Competition," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 3(4), pages 373-89.
  2. Olsen, Trond E. & Osmundsen, Petter, 2003. "Spillovers and international competition for investments," Journal of International Economics, Elsevier, Elsevier, vol. 59(1), pages 211-238, January.
  3. Wilson, John Douglas, 1999. "Theories of Tax Competition," National Tax Journal, National Tax Association, vol. 52(n. 2), pages 269-304, June.
  4. Wilson, John Douglas & Wildasin, David E., 2004. "Capital tax competition: bane or boon," Journal of Public Economics, Elsevier, Elsevier, vol. 88(6), pages 1065-1091, June.
  5. Wilson, John D., 1986. "A theory of interregional tax competition," Journal of Urban Economics, Elsevier, vol. 19(3), pages 296-315, May.
  6. Zodrow, George R. & Mieszkowski, Peter, 1986. "Pigou, Tiebout, property taxation, and the underprovision of local public goods," Journal of Urban Economics, Elsevier, vol. 19(3), pages 356-370, May.
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Cited by:
  1. Johannes Becker & Andrea Schneider, 2014. "Bidding for Firms with Unknown Characteristics," CESifo Working Paper Series 4806, CESifo Group Munich.

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