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The Supply of Foreign Direct Investment Incentives: Subsidy Competition in an Oligopolistic Framework

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Author Info
Havranek, Tomas

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Abstract

This paper examines the microeconomic motivation of governments to provide tax incentives for foreign direct investment. Author applies the classical models of oligopoly to subsidy competition, endogenousing investment incentives, but leaving tax rates exogenous. According to the conventional wisdom, subsidy competition leads to overprovision of incentives. This paper suggests that, in the oligopolistic framework, supranational coordination can either decrease or increase the supply of subsidies. Further, in the setting of subsidy regulation, the host country's corporate income tax rate has an ambiguous effect on the provision of incentives.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 10770.

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Date of creation: 26 Sep 2008
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Handle: RePEc:pra:mprapa:10770

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Related research
Keywords: Investment incentives; Subsidy competition; Productivity spillovers; Oligopoly; Foreign direct investment; Multinational corporations;

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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
F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements

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References listed on IDEAS
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.:
  1. Haaland, Jan I & Wooton, Ian, 1999. " International Competition for Multinational Investment," Scandinavian Journal of Economics, Blackwell Publishing, vol. 101(4), pages 631-49, December. [Downloadable!] (restricted)
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  2. Haufler, Andreas & Wooton, Ian, 1999. "Country size and tax competition for foreign direct investment," Journal of Public Economics, Elsevier, vol. 71(1), pages 121-139, January. [Downloadable!] (restricted)
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  3. 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. [Downloadable!] (restricted)
  4. Timothy Besley & Paul Seabright, 1999. "The effects and policy implications of state aids to industry: an economic analysis," Economic Policy, CEPR, CES, MSH, vol. 14(28), pages 13-53, 04. [Downloadable!] (restricted)
  5. Andrew Charlton, 2003. "Incentive Bidding for Mobile Investment: Economic Consequences and Potential Responses," OECD Development Centre Working Papers 203, OECD, Development Centre. [Downloadable!]
  6. 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. [Downloadable!] (restricted)
  7. Haaparanta, Pertti, 1996. "Competition for foreign direct investments," Journal of Public Economics, Elsevier, vol. 63(1), pages 141-153, December. [Downloadable!] (restricted)
  8. Blomström, Magnus & Kokko, Ari, 2003. "The Economics of Foreign Direct Investment Incentives," EIJS Working Paper Series 168, The European Institute of Japanese Studies.
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  9. Enrico Pennings, . "How to Maximize Domestic Benefits from Irreversible Foreign Investments," Working Papers 205, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University. [Downloadable!]
  10. Barros, Pedro P & Cabral, Luis, 2000. "Competing for Foreign Direct Investment," Review of International Economics, Blackwell Publishing, vol. 8(2), pages 360-71, May. [Downloadable!] (restricted)
  11. Tomáš Havránek & Zuzana Iršová, 2008. "Intra-Industry Spillovers from Inward FDI: A Meta-Regression Analysis," Working Papers IES 2008/08, Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies, revised Jun 2008. [Downloadable!]
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Cited by:
(explanations, 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.)

  1. Tomáš Havránek, 2009. "Subsidy Competition for FDI: Fierce or Weak?," Working Papers IES 2009/07, Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies, revised Feb 2009. [Downloadable!]
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