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Optimal National Policies towards Multinationals when Local Regions Can Choose between Firm-Specific and Non-Firm-Specific Policies

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  • Osiris J. Parcero

Abstract

This paper looks at a country's optimal central-government optimal policy in a setting where its two identical local jurisdictions compete to attract footloose multinationals to their sites, and where the considered multinationals strictly prefer this country to the rest of the world. For the sake of realism the model allows the local jurisdictions to choose between firm-specific and non-firm-specific policies. We show that the implementation of the jurisdictional firm-specific policy is weakly welfare dominant. Hence the frequent calls for the central government to ban the former type of policies go against the advice of this paper.

Suggested Citation

  • Osiris J. Parcero, 2017. "Optimal National Policies towards Multinationals when Local Regions Can Choose between Firm-Specific and Non-Firm-Specific Policies," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 73(3), pages 292-316, September.
    • Handle: RePEc:mhr:finarc:urn:sici:0015-2218(201709)73:3_292:onptmw_2.0.tx_2-k
    DOI: 10.1628/001522117X14932991128985
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    More about this item

    Keywords

    tax competition; concurrent taxation; footloose multinational; optimal policy; bargaining;
    All these keywords.

    JEL classification:

    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • H71 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Taxation, Subsidies, and Revenue

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