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Governments at the bidding table

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  • Johannes Van Biesebroeck

Abstract

The New Zealand government has recently indicated it will scale back its subsidy program for foreign firms investing in the country, except for screen productions, and divert the budgeted funds to an outward investment strategy. In sharp contrast, local governments have lately shown a much greater willingness to subsidize cultural or sporting events in order to boost local economic activity. I evaluate under what circumstances it makes sense for a government to subsidize private investments, paying particular attention to interjurisdictional competition. I show what factors determine equilibrium subsidy levels when governments enter a bidding war, and derive the expected welfare gain.

Suggested Citation

  • Johannes Van Biesebroeck, 2008. "Governments at the bidding table," New Zealand Economic Papers, Taylor & Francis Journals, vol. 42(2), pages 213-232.
    • Handle: RePEc:taf:nzecpp:v:42:y:2008:i:2:p:213-232
    DOI: 10.1080/00779950809544422
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    References listed on IDEAS

    as
    1. Michael Greenstone & Richard Hornbeck & Enrico Moretti, 2008. "Identifying Agglomeration Spillovers: Evidence from Million Dollar Plants," Working Paper series 36_08, Rimini Centre for Economic Analysis.
    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.
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    Cited by:

    1. Johannes Van Biesebroeck, 2010. "Bidding for Investment Projects: Smart Public Policy or Corporate Welfare?," Canadian Public Policy, University of Toronto Press, vol. 36(s1), pages 31-48, April.

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