Fiscal Competition for FDI when Bidding is Costly
AbstractWe introduce bidding costs into a standard model of tax/subsidy competition between two potential host countries to attract a monopoly firm’s plant. Such a bidding cost, even if it is infinitesimal, qualitatively alters the resulting equilibrium. At most one country offers fiscal inducements to the firm, and this attenuates the “familiar race to the bottom” in corporate taxes. In general, the successful host country benefits from the resulting absence of active tax/subsidy competition, at the expense of the firm’s owners in the rest of the world.
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Bibliographic InfoPaper provided by Department of Economics, Loughborough University in its series Discussion Paper Series with number 2013_04.
Date of creation: Jun 2013
Date of revision: Jun 2013
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- F2 - International Economics - - International Factor Movements and International Business
- H2 - Public Economics - - Taxation, Subsidies, and Revenue
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