The Supply of Foreign Direct Investment Incentives: Subsidy Competition in an Oligopolistic Framework
AbstractThis 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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Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 10770.
Date of creation: 26 Sep 2008
Date of revision:
Investment incentives; Subsidy competition; Productivity spillovers; Oligopoly; Foreign direct investment; Multinational corporations;
Other versions of this item:
- Tomáš Havránek, 2009. "The supply of foreign direct investment incentives: subsidy competition in an oligopolistic framework," Prague Economic Papers, University of Economics, Prague, vol. 2009(2), pages 131-155.
- 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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