Optimal country's policy towards multinationals when local regions can choose between firm-specific and non-firm-specific policies
AbstractThis paper looks at a county’s central government optimal policy in a setting where its two identical local regions compete for the attraction of footloose multinationals to their sites, and where the considered multinationals strictly prefer this country to the rest of the world. For the sake of reality the model allows the local regions to choose between the implementation of firm-specific and non-firm-specific policies. We find that, even though the two local regions are identical, some degree of regional tax competition is good for country’s welfare. Moreover, we show that the implementation of the regional firmspecific policies weakly welfare dominates the implementation of the regional non-firmspecific ones. Hence the not infrequent calls for the central government to ban the former type of policies go against the advice of this paper.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Institut d'Economia de Barcelona (IEB) in its series Working Papers with number 2009/34.
Length: 37 pages
Date of creation: 2009
Date of revision:
FDI; regional; tax competition; concurrent taxation; bargaining; tax posting; footloose multinational; optimal policy; country’s welfare;
Find related papers by JEL classification:
- F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
- H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
- H71 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Taxation, Subsidies, and Revenue
This paper has been announced in the following NEP Reports:
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Ariel Rubinstein, 2010.
"Perfect Equilibrium in a Bargaining Model,"
Levine's Working Paper Archive
252, David K. Levine.
- Han, Seungjin & Leach, John, 2005.
"A Bargaining Model of Tax Competition,"
Micro Theory Working Papers
han-05-12-02-10-57-12, Microeconomics.ca Website, revised 04 Dec 2007.
- Wang, Ruqu, 1995. "Bargaining versus posted-price selling," European Economic Review, Elsevier, vol. 39(9), pages 1747-1764, December.
- Robert S. Chirinko & Daniel J. Wilson, 2007.
"State Investment Tax Incentives: A Zero-Sum Game?,"
CESifo Working Paper Series
1895, CESifo Group Munich.
- Borck, Rainald & Pflüger, Michael P., 2004.
"Agglomeration and Tax Competition,"
IZA Discussion Papers
1033, Institute for the Study of Labor (IZA).
- Andreas Haufler & Ian Wooton, 2001.
"Regional Tax Coordination and Foreign Direct Investment,"
2001_11, Business School - Economics, University of Glasgow.
- H aufler, Andreas & Ian Wootton, 2002. "Regional Tax Coordination and Foreign Direct Investment," Royal Economic Society Annual Conference 2002 98, Royal Economic Society.
- Andreas Haufler & Ian Wooton, 2001. "Regional Tax Coordination and Foreign Direct Investment," CESifo Working Paper Series 628, CESifo Group Munich.
- Haufler, Andreas & Wooton, Ian, 2003. "Regional Tax Coordination and Foreign Direct Investment," Discussion Papers in Economics 61, University of Munich, Department of Economics.
- Haufler, Andreas & Wooton, Ian, 2001. "Regional Tax Coordination and Foreign Direct Investment," CEPR Discussion Papers 3063, C.E.P.R. Discussion Papers.
- Haufler, Andreas & Wooton, Ian, 2001. "Regional tax coordination and foreign direct investment," Center for European, Governance and Economic Development Research Discussion Papers 14, University of Goettingen, Department of Economics.
- Muthoo,Abhinay, 1999. "Bargaining Theory with Applications," Cambridge Books, Cambridge University Press, number 9780521576475.
- Bjorvatn, Kjetil & Eckel, Carsten, 2006. "Policy competition for foreign direct investment between asymmetric countries," European Economic Review, Elsevier, vol. 50(7), pages 1891-1907, October.
- Bolton, Patrick & Whinston, Michael D, 1993. "Incomplete Contracts, Vertical Integration, and Supply Assurance," Review of Economic Studies, Wiley Blackwell, vol. 60(1), pages 121-48, January.
- Barros, Pedro P & Cabral, Luis, 2000. "Competing for Foreign Direct Investment," Review of International Economics, Wiley Blackwell, vol. 8(2), pages 360-71, May.
- Kristian Behrens & Pierre M. Picard, 2008. "Bidding for Horizontal Multinationals," Journal of the European Economic Association, MIT Press, vol. 6(6), pages 1244-1278, December.
- Jiang Xu & Anthony G.O. Yeh, 2005. "City Repositioning and Competitiveness Building in Regional Development: New Development Strategies in Guangzhou, China," International Journal of Urban and Regional Research, Wiley Blackwell, vol. 29(2), pages 283-308, 06.
- Michael J. Keen & Christos Kotsogiannis, 2002. "Does Federalism Lead to Excessively High Taxes?," American Economic Review, American Economic Association, vol. 92(1), pages 363-370, March.
- David De Meza & Ben Lockwood, 1998. "Does Asset Ownership Always Motivate Managers? Outside Options And The Property Rights Theory Of The Firm," The Quarterly Journal of Economics, MIT Press, vol. 113(2), pages 361-386, May.
- Bond, Eric W & Samuelson, Larry, 1986. "Tax Holidays as Signals," American Economic Review, American Economic Association, vol. 76(4), pages 820-26, September.
- C. Dembour, 2008. "Competition for Business Location: A Survey," Journal of Industry, Competition and Trade, Springer, vol. 8(2), pages 89-111, June.
- 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.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ().
If references are entirely missing, you can add them using this form.