Inter-jurisdiction Subsidy Competition for a New Production Plant: What is the Central Government Optimal Policy?
AbstractThis paper models inter-jurisdiction competition for foreign direct investment and optimal government policy intervention to protect the national interest. The inter-jurisdiction competition for a multinational has the potential of favouring the multinational and of becoming detrimental for the host country. The central government wants to limit such competition but it cannot tax-discriminate between different types of multinationals. We find that the central government would use tax policy to create asymmetries even when the underlying structure is symmetrical. This offers a novel explanation for the creation of ‘Special Economic Zones’ in many countries, which are well known to be aimed at the attraction of foreign direct investment.
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Bibliographic InfoPaper provided by Centre for Research into Industry, Enterprise, Finance and the Firm in its series CRIEFF Discussion Papers with number 0601.
Date of creation: May 2006
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Bargaining; subsidy; regional; competiton; FDI;
Other versions of this item:
- Parcero, O.J., 2007. "Inter-jurisdiction subsidy competition for a new production plant: What is the central government optimal policy?," Regional Science and Urban Economics, Elsevier, vol. 37(6), pages 688-702, November.
- 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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