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A race beyond the bottom: the nature of bidding for a firm

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  • Taiji Furusawa

    ()

  • Kazumi Hori

    ()

  • Ian Wooton

    ()

Abstract

We examine how the bidding environment may affect the outcome of tax competition between two countries (or two regions) in attracting a firm’s foreign direct investment (FDI). We compare the equilibrium location choice and payoffs from an English auction, with both complete and incomplete information, relative to those in the traditional setting of a sealed-bid first-price auction. We find that an English auction leads to more aggressive bidding in “race beyond the bottom,” where the nations may bid beyond their own valuations of the FDI. We also discuss the roles of auction protocol and information asymmetry on the auction outcome. Copyright Springer Science+Business Media New York 2015

Suggested Citation

  • 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.
  • Handle: RePEc:kap:itaxpf:v:22:y:2015:i:3:p:452-475
    DOI: 10.1007/s10797-014-9326-z
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Daniel Hopp & Michael Kriebel, 2016. "The political economy of interregional competition for firms," CQE Working Papers 5616, Center for Quantitative Economics (CQE), University of Muenster.
    2. Johannes Becker & Andrea Schneider, 2014. "Bidding for Firms with Unknown Characteristics," CESifo Working Paper Series 4806, CESifo Group Munich.
    3. Hayato Kato & Hirofumi Okoshi, 2017. "Production Location of Multinational Firms under Transfer Pricing: The Impact of the Arm's Length Principle," Keio-IES Discussion Paper Series 2017-016, Institute for Economics Studies, Keio University.

    More about this item

    Keywords

    Tax competition; Foreign direct investment; International ownership; English auction; Information asymmetry; 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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