Targeted Transfers, Investment Spillovers, and the Tax Environment
AbstractWe examine the informational role of targeted tax transfers used by local governments to attract corporate investment projects. The transfer may potentially be used to solve an information externality in which subsequent investments that follow the initial project may fail to occur even though they are profitable. The targeted transfer may be used to signal the profitability of such ancillary investments and thereby attract them. We show that this signaling role implies that an environment of either generally high corporate tax rates or low gains from secondary investments paradoxically yields an equilibrium in which the necessary government subsidy is lower.
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Bibliographic InfoPaper provided by Department of Economics, Tufts University in its series Discussion Papers Series, Department of Economics, Tufts University with number 0702.
Date of creation: 2007
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taxes; transfers; externalities;
Find related papers by JEL classification:
- H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
- H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
This paper has been announced in the following NEP Reports:
- NEP-ALL-2007-03-10 (All new papers)
- NEP-PBE-2007-03-10 (Public Economics)
- NEP-PPM-2007-03-10 (Project, Program & Portfolio Management)
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