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

  • Johannes Van Biesebroeck

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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Article provided by University of Toronto Press in its journal Canadian Public Policy.

Volume (Year): 36 (2010)
Issue (Month): s1 (April)
Pages: 31-48

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Handle: RePEc:cpp:issued:v:36:y:2010:i:s1:p:31-48
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  1. Holmes, Thomas J., 1999. "How Industries Migrate When Agglomeration Economies Are Important," Journal of Urban Economics, Elsevier, vol. 45(2), pages 240-263, March.
  2. 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.
  3. Maureen Appel Molot, 2005. "Location Incentives and Inter-state Competition for FDI: Bidding Wars in the Automotive Industry," Chapters, in: Governance, Multinationals and Growth, chapter 13 Edward Elgar.
  4. Hashmi, Aamir Rafique & Van Biesebroeck, Johannes, 2012. "The Relationship between Market Structure and Innovation in Industry Equilibrium: A Case Study of the Global Automobile Industry," CEPR Discussion Papers 8783, C.E.P.R. Discussion Papers.
  5. 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.
  6. 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.
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  8. Blomström, Magnus & Kokko, Ari, 2003. "The Economics of Foreign Direct Investment Incentives," CEPR Discussion Papers 3775, C.E.P.R. Discussion Papers.
  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.
  10. Johannes Van Biesebroeck & Aamir Hashmi, 2007. "Market Structure and Innovation: A Dynamic Analysis of the Global Automobile Industry," 2007 Meeting Papers 362, Society for Economic Dynamics.
  11. Black, Dan A & Hoyt, William H, 1989. "Bidding for Firms," American Economic Review, American Economic Association, vol. 79(5), pages 1249-56, December.
  12. 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.
  13. Barros, Pedro P & Cabral, Luis, 2000. "Competing for Foreign Direct Investment," Review of International Economics, Wiley Blackwell, vol. 8(2), pages 360-71, May.
  14. 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.
  15. 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.
  16. Johannes Van Biesebroeck, 2008. "Governments at the bidding table," New Zealand Economic Papers, Taylor & Francis Journals, vol. 42(2), pages 213-232.
  17. 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.
  18. Edward L. Glaeser, 2001. "The Economics of Location-Based Tax Incentives," Harvard Institute of Economic Research Working Papers 1932, Harvard - Institute of Economic Research.
  19. 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.
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