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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. 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. Gorg, Holger & Strobl, Eric, 2001. "Multinational Companies and Productivity Spillovers: A Meta-analysis," Economic Journal, Royal Economic Society, vol. 111(475), pages F723-39, November.
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Citations

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Cited by:
  1. 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.
  2. 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.
  3. Facundo Albornoz & Grégory Corcos, 2005. "Subsidy competition in integrating economies," PSE Working Papers halshs-00590785, HAL.
  4. 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.
  5. Clemens Fuest & Bernd Huber & Jack Mintz, 2003. "Capital Mobility and Tax Competition: A Survey," CESifo Working Paper Series 956, CESifo Group Munich.
  6. Brülhart, Marius & Jametti, Mario, 2004. "Vertical versus Horizontal Tax Externalities: An Empirical Test," CEPR Discussion Papers 4593, C.E.P.R. Discussion Papers.
  7. repec:hal:wpaper:halshs-00590785 is not listed on IDEAS
  8. 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.
  9. 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.
  10. 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.
  11. 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).

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