Taxation of Foreign Multinationals: A Sequential Bargaining Approach to Tax Holidays
In this paper we view the tax schedule applied to the profits of a Multinational Enterprise (MNE) as the outcome of a sequential bargaining process and show, using modern game theory developments (the "perfect equilibrium" solution concept) that tax holidays will emerge from such a process if a MNE incurs fixed costs upon entry. At the core of our results is the recognition that the existence of sunk costs creates an ex post (entry) bilateral monopoly situation. We show that the tax rate emerging from this form of bargaining has a dynamic structure. We obtain results on the length and discounted value of the tax holiday, its precise form and the way all this responds to changes in fixed costs.
|Date of creation:||Aug 1984|
|Date of revision:|
|Contact details of provider:|| Postal: |
Phone: 44 - 20 - 7183 8801
Fax: 44 - 20 - 7183 8820
|Order Information:|| Email: |
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Ariel Rubinstein, 2010.
"Perfect Equilibrium in a Bargaining Model,"
Levine's Working Paper Archive
661465000000000387, David K. Levine.
- Bond, Eric W & Samuelson, Larry, 1986. "Tax Holidays as Signals," American Economic Review, American Economic Association, vol. 76(4), pages 820-26, September.
- Thomas, Jonathan & Worrall, Tim, 1994.
"Foreign Direct Investment and the Risk of Expropriation,"
Review of Economic Studies,
Wiley Blackwell, vol. 61(1), pages 81-108, January.
- Thomas, Jonathan & Worrall, Tim, 1990. "Foreign direct investment and the risk of expropriation," Kiel Working Papers 411, Kiel Institute for the World Economy.
- Thomas, J.P. & Worrall, T., 1991. "Foreign direct investment and the risk of expropriation," Discussion Paper 1991-26, Tilburg University, Center for Economic Research.
- Thomas, J. & Worrall, T., 1990. "Foreign Direct Investment And The Risk Of Expropriation," The Warwick Economics Research Paper Series (TWERPS) 342, University of Warwick, Department of Economics.
- Thomas, J. & Worral, T., 1991. "Foreign Direcyt Investment and the Risk of Expropriation," Papers 9126, Tilburg - Center for Economic Research.
- Black, Dan A & Hoyt, William H, 1989. "Bidding for Firms," American Economic Review, American Economic Association, vol. 79(5), pages 1249-56, December.
- Shaked, Avner & Sutton, John, 1984. "Involuntary Unemployment as a Perfect Equilibrium in a Bargaining Model," Econometrica, Econometric Society, vol. 52(6), pages 1351-64, November.
- King, Ian & Welling, Linda, 1992.
"Commitment, Efficiency and Footloose Firms,"
London School of Economics and Political Science, vol. 59(233), pages 63-73, February.
- Jean-Francois Wen, 1992. "Tax Holidays in a Business Climate," Working Papers 864, Queen's University, Department of Economics.
When requesting a correction, please mention this item's handle: RePEc:cpr:ceprdp:25. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ()The email address of this maintainer does not seem to be valid anymore. Please ask to update the entry or send us the correct address
If references are entirely missing, you can add them using this form.