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

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  • Ben Ferrett

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  • Ian Wooton

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Abstract

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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Suggested Citation

  • Ben Ferrett & Ian Wooton, 2010. "Tax competition and the international distribution of firm ownership: an invariance result," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 17(5), pages 518-531, October.
  • Handle: RePEc:kap:itaxpf:v:17:y:2010:i:5:p:518-531
    DOI: 10.1007/s10797-009-9126-z
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    References listed on IDEAS

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    1. Haufler, Andreas & Wooton, Ian, 1999. "Country size and tax competition for foreign direct investment," Journal of Public Economics, Elsevier, vol. 71(1), pages 121-139, January.
    2. Fumagalli, Chiara, 2003. "On the welfare effects of competition for foreign direct investments," European Economic Review, Elsevier, vol. 47(6), pages 963-983, December.
    3. 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.
    4. Olsen, Trond E. & Osmundsen, Petter, 2003. "Spillovers and international competition for investments," Journal of International Economics, Elsevier, vol. 59(1), pages 211-238, January.
    5. Haaparanta, Pertti, 1996. "Competition for foreign direct investments," Journal of Public Economics, Elsevier, vol. 63(1), pages 141-153, December.
    6. 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.
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    Citations

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    Cited by:

    1. Oscar Amerighi & Giuseppe De Feo, 2014. "Competition for FDI and Profit Shifting: On the Effects of Subsidies and Tax Breaks," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 70(3), pages 374-404, September.
    2. O. Amerighi & G. De Feo, 2009. "Is Competition for FDI Bad for Regional Welfare?," Working Papers 680, Dipartimento Scienze Economiche, Universita' di Bologna.
    3. Ben Ferrett & Ian Wooton, 2013. "Fiscal Competition for FDI when Bidding is Costly," Economics Bulletin, AccessEcon, vol. 33(3), pages 2202-2208.
    4. Ma, Jie & Wooton, Ian, 2017. "Market Size, Product Differentiation and Bidding for New Varieties," CEPR Discussion Papers 11943, C.E.P.R. Discussion Papers.
    5. Sanjo, Yasuo, 2015. "The role of firm ownership in policy competition for foreign direct investment between asymmetric countries," International Review of Economics & Finance, Elsevier, vol. 35(C), pages 110-121.
    6. Hayato Kato, 2018. "Lobbying and tax competition in an oligopolistic industry: a reverse home-market effect," Spatial Economic Analysis, Taylor & Francis Journals, vol. 13(3), pages 276-295, July.
    7. Ben Ferrett & Andreas Hoefele, 2015. "On the efficiency of fiscal competition for FDI when incumbent firms are foreign-owned," Economics Bulletin, AccessEcon, vol. 35(1), pages 694-701.
    8. Taiji Furusawa & Kazumi Hori & Ian Wooton, 2015. "A race beyond the bottom: the nature of bidding for a firm," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 22(3), pages 452-475, June.
    9. Mizuno, Nobuhiro, 2016. "Political structure as a legacy of indirect colonial rule: Bargaining between national governments and rural elites in Africa," Journal of Comparative Economics, Elsevier, vol. 44(4), pages 1023-1039.
    10. Ferdinand Mittermaier, 2009. "The Role of Firm Ownership in Tax Competition," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 65(3), pages 297-312, September.

    More about this item

    Keywords

    Tax/subsidy competition; Foreign direct investment; International distribution of firm ownership; F12; F23; H25; H73;

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • H73 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Interjurisdictional Differentials and Their Effects

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