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Bidding for Investment Projects: Smart Public Policy or Corporate Welfare?

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Author Info
Johannes Van Biesebroeck

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Abstract

Recently, several governments in Canada have shown an increased willingness to subsidize private investment projects, especially in the manufacturing sector, to the dismay of tax conservatives. I evaluate under what circumstances these government subsidies make sense, paying particular attention to interjurisdictional competition. I show what governments should expect to pay when they join a bidding war and derive the expected welfare gain. The analysis looks in detail at the efforts of the Ontario and federal governments to attract new investments in the automobile sector.

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File URL: http://repec.economics.utoronto.ca/files/tecipa-344.pdf
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Publisher Info
Paper provided by University of Toronto, Department of Economics in its series Working Papers with number tecipa-344.

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Length: 28 pages
Date of creation: 16 Nov 2008
Date of revision:
Handle: RePEc:tor:tecipa:tecipa-344

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Postal: 150 St. George Street, Toronto, Ontario
Phone: (416) 978-5283
Fax: (416) 978-6713

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Related research
Keywords: Foreign Direct Investment; government competition; subsidies; investment incentives; automobile industry; opportunity cost;

Other versions of this item:

Find related papers by JEL classification:
H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
L62 - Industrial Organization - - Industry Studies: Manufacturing - - - Automobiles; Other Transportation Equipment
D44 - Microeconomics - - Market Structure and Pricing - - - Auctions

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  1. Ian King & R. Preston McAfee & Linda Welling, 1993. "Industrial Blackmail: Dynamic Tax Competition and Public Investment," Canadian Journal of Economics, Canadian Economics Association, vol. 26(3), pages 590-608, August. [Downloadable!] (restricted)
  2. Milgrom, Paul & Roberts, John, 1990. "The Economics of Modern Manufacturing: Technology, Strategy, and Organization," American Economic Review, American Economic Association, vol. 80(3), pages 511-28, June. [Downloadable!] (restricted)
  3. Michael Greenstone & Richard Hornbeck & Enrico Moretti, 2008. "Identifying Agglomeration Spillovers: Evidence from Million Dollar Plants," NBER Working Papers 13833, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  4. Michael Greenstone & Enrico Moretti, 2003. "Bidding for Industrial Plants: Does Winning a 'Million Dollar Plant' Increase Welfare?," NBER Working Papers 9844, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  5. James A. Brander & Barbara J. Spencer, 1981. "Tariffs and the Extraction of Foreign Monopoly Rents under Potential Entry," Canadian Journal of Economics, Canadian Economics Association, vol. 14(3), pages 371-89, August. [Downloadable!] (restricted)
    Other versions:
  6. Head, C. Keith & Ries, John C. & Swenson, Deborah L., 1999. "Attracting foreign manufacturing: Investment promotion and agglomeration," Regional Science and Urban Economics, Elsevier, vol. 29(2), pages 197-218, March. [Downloadable!] (restricted)
  7. Holmes, Thomas J., 1999. "How Industries Migrate When Agglomeration Economies Are Important," Journal of Urban Economics, Elsevier, vol. 45(2), pages 240-263, March. [Downloadable!] (restricted)
    Other versions:
  8. Blomström, Magnus & Kokko, Ari, 2003. "The Economics of Foreign Direct Investment Incentives," EIJS Working Paper Series 168, The European Institute of Japanese Studies.
    Other versions:
  9. Bev Dahlby, 2005. "A Framework for Evaluating Provincial R&D Tax Subsidies," Canadian Public Policy, University of Toronto Press, vol. 31(1), pages 45-58, March. [Downloadable!] (restricted)
  10. Jaffe, Adam B & Trajtenberg, Manuel & Henderson, Rebecca, 1993. "Geographic Localization of Knowledge Spillovers as Evidenced by Patent Citations," The Quarterly Journal of Economics, MIT Press, vol. 108(3), pages 577-98, August. [Downloadable!] (restricted)
    Other versions:
  11. Neven, Damien & Siotis, Georges, 1993. "Foreign Direct Investment in the European Community: Some Policy Issues," Oxford Review of Economic Policy, Oxford University Press, vol. 9(2), pages 72-93, Summer.
  12. Thomas H. Klier, 1999. "Agglomeration in the U.S. auto supplier industry," Economic Perspectives, Federal Reserve Bank of Chicago, issue Q I, pages 18-34. [Downloadable!]
  13. Edward L. Glaeser, 2001. "The Economics of Location-Based Tax Incentives," Harvard Institute of Economic Research Working Papers 1932, Harvard - Institute of Economic Research. [Downloadable!]
  14. 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)
  15. Black, Dan A & Hoyt, William H, 1989. "Bidding for Firms," American Economic Review, American Economic Association, vol. 79(5), pages 1249-56, December. [Downloadable!] (restricted)
  16. Hashmi, Aamir Rafique & Van Biesebroeck, Johannes, 2007. "Market Structure and Innovation: A Dynamic Analysis of the Global Automobile Industry," MPRA Paper 1787, University Library of Munich, Germany. [Downloadable!]
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