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A Race beyond the Bottom: The Nature of Bidding for a Firm

  • Taiji Furusawa
  • Kazumi Hori
  • Ian Wooton

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.

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Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 3049.

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Date of creation: 2010
Handle: RePEc:ces:ceswps:_3049
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  1. Bond, Eric W & Samuelson, Larry, 1986. "Tax Holidays as Signals," American Economic Review, American Economic Association, vol. 76(4), pages 820-826, September.
  2. Kempf, H. & Rota Graziosi, G., 2010. "Endogenizing leadership in tax competition: a timing game perspective," Working papers 299, Banque de France.
  3. Scoones, David & Wen, Jean-Francois, 2001. " Common and Private Values of the Firm in Tax Competition," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 3(4), pages 373-389.
  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. Burkart, Mike, 1995. " Initial Shareholdings and Overbidding in Takeover Contests," Journal of Finance, American Finance Association, vol. 50(5), pages 1491-1515, December.
  6. Black, Dan A & Hoyt, William H, 1989. "Bidding for Firms," American Economic Review, American Economic Association, vol. 79(5), pages 1249-1256, December.
  7. Zodrow, George R. & Mieszkowski, Peter, 1986. "Pigou, Tiebout, property taxation, and the underprovision of local public goods," Journal of Urban Economics, Elsevier, vol. 19(3), pages 356-370, May.
  8. Ian King & R. Preston McAfee & Linda Welling, 1993. "Industrial Blackmail: Dynamic Tax Competition and Public Investment," Canadian Journal of Economics, Canadian Economics Association, vol. 26(3), pages 590-608, August.
  9. Bjorvatn, Kjetil & Eckel, Carsten, 2006. "Policy competition for foreign direct investment between asymmetric countries," European Economic Review, Elsevier, vol. 50(7), pages 1891-1907, October.
  10. Kessing, Sebastian G. & Konrad, Kai A. & Kotsogiannis, Christos, 2009. "Federalism, weak institutions and the competition for foreign direct investment," Munich Reprints in Economics 22086, University of Munich, Department of Economics.
  11. Andreas Haufler & Ian Wooton, "undated". "Country Size and Tax Competition for Foreign Direct Investment," Working Papers 9702, Business School - Economics, University of Glasgow.
  12. Philippe Jehiel & Benny Moldovanu, 1996. "Strategic Nonparticipation," RAND Journal of Economics, The RAND Corporation, vol. 27(1), pages 84-98, Spring.
  13. Devereux, Michael P & Lockwood, Ben & Redoano, Michela, 2002. "Do Countries Compete Over Corporate Tax Rates?," The Warwick Economics Research Paper Series (TWERPS) 642, University of Warwick, Department of Economics.
  14. Kempf, Hubert & Rota-Graziosi, Grégoire, 2010. "Endogenizing leadership in tax competition," Journal of Public Economics, Elsevier, vol. 94(9-10), pages 768-776, October.
  15. Haaland, J.I. & Wooton, I., 1998. "International Competition for Multinational Investment," Papers 14/98, Norwegian School of Economics and Business Administration-.
  16. C. Dembour, 2008. "Competition for Business Location: A Survey," Journal of Industry, Competition and Trade, Springer, vol. 8(2), pages 89-111, June.
  17. Paolo Panteghini & Guttorm Schjelderup, 2006. "To Invest or not to Invest: A real options approach to FDIs and tax competition," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 13(6), pages 643-660, November.
  18. Hubert Kempf & Grégoire Rota-Graziosi, 2010. "Endogenizing leadership in the tax competition race," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-00492105, HAL.
  19. Hikaru Ogawa, 2013. "Further analysis on leadership in tax competition: the role of capital ownership," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 20(3), pages 474-484, June.
  20. David Wettstein & Israel Luski & Todd Kaplan, 2003. "Government policy towards multi-national corporations," Economics Bulletin, AccessEcon, vol. 6(3), pages 1-8.
  21. Singh, Rajdeep, 1998. "Takeover Bidding with Toeholds: The Case of the Owner's Curse," Review of Financial Studies, Society for Financial Studies, vol. 11(4), pages 679-704.
  22. Ferrett, Ben & Wooton, Ian, 2006. "Tax Competition and the International Distribution of Firm Ownership: An Invariance Result," CEPR Discussion Papers 5984, C.E.P.R. Discussion Papers.
  23. Wilson, John Douglas, 1999. "Theories of Tax Competition," National Tax Journal, National Tax Association, vol. 52(n. 2), pages 269-304, June.
  24. Fumagalli, Chiara, 2003. "On the welfare effects of competition for foreign direct investments," European Economic Review, Elsevier, vol. 47(6), pages 963-983, December.
  25. Wilson, John Douglas & Wildasin, David E., 2004. "Capital tax competition: bane or boon," Journal of Public Economics, Elsevier, vol. 88(6), pages 1065-1091, June.
  26. Ronald B. Davies, 2000. "State Tax Competition for Foreign Direct Investment: A Winnable War?," University of Oregon Economics Department Working Papers 2000-4, University of Oregon Economics Department, revised 01 Jul 2002.
  27. repec:hal:journl:halshs-00492105 is not listed on IDEAS
  28. Haaparanta, Pertti, 1996. "Competition for foreign direct investments," Journal of Public Economics, Elsevier, vol. 63(1), pages 141-153, December.
  29. repec:ebl:ecbull:v:6:y:2003:i:3:p:1-8 is not listed on IDEAS
  30. Wilson, John D., 1986. "A theory of interregional tax competition," Journal of Urban Economics, Elsevier, vol. 19(3), pages 296-315, May.
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