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Optimal country's policy towards multinationals when local regions can choose between firm-specific and non-firm-specific policies

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  • Osiris J. Parcero

    (United Arab Emirates University)

Abstract

This 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.

Suggested Citation

  • 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).
    • Handle: RePEc:ieb:wpaper:doc2009-34
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    References listed on IDEAS

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    More about this item

    Keywords

    FDI; regional; tax competition; concurrent taxation; bargaining; tax posting; footloose multinational; optimal policy; country’s welfare;
    All these keywords.

    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

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