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Tax competition and the international distribution of firm ownership: an invariance result

  • Ben Ferrett

    ()

  • Ian Wooton

    ()

Intuition suggests that the international distribution of firm ownership ought to affect tax/subsidy competition for mobile plants. One might expect that the greater the share of a firm owned within a potential host country that offers a relatively profitable production location, the more that nation will be prepared to pay to attract the firm's production facility. We show this intuition to be false. In equilibrium, both plant location and the tax/subsidy offers are independent of the international distribution of ownership. The reason is that the tax/subsidy competition equalises the firm's post-tax profits across countries, making owners of capital indifferent towards the location of production.

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File URL: http://hdl.handle.net/10.1007/s10797-009-9126-z
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Article provided by Springer in its journal International Tax and Public Finance.

Volume (Year): 17 (2010)
Issue (Month): 5 (October)
Pages: 518-531

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Handle: RePEc:kap:itaxpf:v:17:y:2010:i:5:p:518-531
Contact details of provider: Web page: http://www.springerlink.com/link.asp?id=102915

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  1. Haaparanta, Pertti, 1996. "Competition for foreign direct investments," Journal of Public Economics, Elsevier, vol. 63(1), pages 141-153, December.
  2. Olsen, Trond E. & Osmundsen, Petter, 2003. "Spillovers and international competition for investments," Journal of International Economics, Elsevier, vol. 59(1), pages 211-238, January.
  3. Andreas Haufler & Ian Wooton, . "Country Size and Tax Competition for Foreign Direct Investment," Working Papers 9702, Business School - Economics, University of Glasgow.
  4. Kozul-Wright, Richard & Rowthorn, Robert, 1998. "Spoilt for Choice? Multinational Corporations and the Geography of International Production," Oxford Review of Economic Policy, Oxford University Press, vol. 14(2), pages 74-92, Summer.
  5. Michael Keen, 1993. "The welfare economics of tax co-ordination in the European Community : a survey," Fiscal Studies, Institute for Fiscal Studies, vol. 14(2), pages 15-36, February.
  6. Fumagalli, Chiara, 2003. "On the welfare effects of competition for foreign direct investments," European Economic Review, Elsevier, vol. 47(6), pages 963-983, December.
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