This paper develops a model in which competing governments offer financial incentives to individual firms to induce the firms to locate within their jurisdictions. Equilibrium is described under three specifications of the supplementary taxes. There is no misallocation of capital under two of these specifications, and there might or might not be capital misallocation under the third. This result contrasts strongly with that of the standard tax competition model, which does not allow governments to treat firms individually. That model almost always finds that competition among governments leads to the misallocation of capital.
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Paper provided by Microeconomics.ca Website in its series Micro Theory Working Papers with number
han-05-12-02-10-57-12.
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.:
Black, Dan A & Hoyt, William H, 1989.
"Bidding for Firms,"
American Economic Review,
American Economic Association, vol. 79(5), pages 1249-56, December.
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