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Regional Tax Coordination and Foreign Direct Investment

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  • H aufler, Andreas

    (University of Goettingen and CESifo)

  • Ian Wootton

    (University of Glasgow and CEPR)

Abstract

The paper analyzes the effects of a regionally coordinated profit tax in a model with three active countries, one of which is not part of the union, and a globally mobile firm. We show that regional tax coordination can lead to two types of welfare gains. First, for investments that would take place in the region in the absence of coordination, this measure can transfer location rents from the firm to the union. Second, by internalizing all of the union's benefits from foreign direct investment, a coordinated policy attracts more investment than when member states act in isolation. Consequently, tax levels may rise or fall under regional coordination.

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Bibliographic Info

Paper provided by Royal Economic Society in its series Royal Economic Society Annual Conference 2002 with number 98.

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Date of creation: 29 Aug 2002
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Handle: RePEc:ecj:ac2002:98

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  1. Andreas Haufler & Ian Wooton, . "Country Size and Tax Competition for Foreign Direct Investment," Working Papers 9702, Business School - Economics, University of Glasgow.
  2. 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.
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  4. Richard E. Baldwin & Paul Krugman, 2002. "Agglomeration, Integration and Tax Harmonization," NBER Working Papers 9290, National Bureau of Economic Research, Inc.
  5. Peter Birch Sørensen, 2001. "International Tax Coordination: Regionalism Versus Globalism," CESifo Working Paper Series 483, CESifo Group Munich.
  6. Konrad, K.A. & Schjelderup, G., 1998. "Fortress Building in Global Tax Competition," Papers 17/98, Norwegian School of Economics and Business Administration-.
  7. Gorg, Holger & Eric Strobl, 2003. "Spillovers from foreign firms through worker mobility: An empirical investigation," Royal Economic Society Annual Conference 2003 89, Royal Economic Society.
  8. Haaparanta, Pertti, 1996. "Competition for foreign direct investments," Journal of Public Economics, Elsevier, vol. 63(1), pages 141-153, December.
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  17. Devereux, Michael P. & Griffith, Rachel, 1998. "Taxes and the location of production: evidence from a panel of US multinationals," Journal of Public Economics, Elsevier, vol. 68(3), pages 335-367, June.
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  19. Ruud A. de Mooij & Sjef Ederveen, 2001. "Taxation and Foreign Direct Investment: A Synthesis of Empirical Research," CESifo Working Paper Series 588, CESifo Group Munich.
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Citations

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Cited by:
  1. Brulhart, Marius & Jametti, Mario, 2006. "Vertical versus horizontal tax externalities: An empirical test," Journal of Public Economics, Elsevier, vol. 90(10-11), pages 2027-2062, November.
  2. Facundo Albornoz & Grégory Corcos, 2005. "Subsidy competition in integrating economies," PSE Working Papers halshs-00590785, HAL.
  3. Leon Bettendorf & Albert Van Der Horst & Ruud A. De Mooij & Hendrik Vrijburg, 2010. "Corporate Tax Consolidation and Enhanced Cooperation in the European Union," Fiscal Studies, Institute for Fiscal Studies, vol. 31(4), pages 453-479, December.
  4. Facundo Albornoz, Gregory Corcos and Toby Kendall, 2005. "Subsidy Competition and the Mode of FDI: Acquisition vs Greenfield," Discussion Papers 05-15, Department of Economics, University of Birmingham.
  5. Osiris J. Parcero, 2009. "Optimal country's policy towards multinationals when local regions can choose between firm-specific and non-firm-specific policies," Working Papers 2009/34, Institut d'Economia de Barcelona (IEB).
  6. Parcero, O.J., 2007. "Inter-jurisdiction subsidy competition for a new production plant: What is the central government optimal policy?," Regional Science and Urban Economics, Elsevier, vol. 37(6), pages 688-702, November.
  7. G. F. Gori & L. Lambertini & A. Tampieri, 2012. "Trade Costs, FDI incentives, and the Intensity of Price Competition," Working Papers wp810, Dipartimento Scienze Economiche, Universita' di Bologna.
  8. repec:hal:wpaper:halshs-00590785 is not listed on IDEAS
  9. Clemens Fuest & Bernd Huber & Jack Mintz, 2003. "Capital Mobility and Tax Competition: A Survey," CESifo Working Paper Series 956, CESifo Group Munich.
  10. Haufler, Andreas & Wooton, Ian, 2006. "The effects of regional tax and subsidy coordination on foreign direct investment," European Economic Review, Elsevier, vol. 50(2), pages 285-305, February.
  11. Joy Bhadury & H. Eiselt, 2012. "Optimizing subsidies for the location of distribution centers," The Annals of Regional Science, Springer, vol. 48(1), pages 247-261, February.

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