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Tax Competition and the International Distribution of Firm Ownership: An Invariance Result

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Abstract

Intuition suggests that the international distribution of firm ownership ought to affect tax/subsidy competition for mobile plants. One might expect that the greater the share of a firm owned within a potential host country that offers a relatively profitable production location, the more that nation will be prepared to pay to attract the firm's production facility. We show this intuition to be false. In equilibrium, both plant location and the tax/subsidy offers are independent of the international distribution of ownership. The reason is that the tax/subsidy competition equalises the firm's post-tax profits across countries, making owners of capital indifferent towards the location of production.

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  • 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.
    • Handle: RePEc:cpr:ceprdp:5984
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    1. Fumagalli, Chiara, 2003. "On the welfare effects of competition for foreign direct investments," European Economic Review, Elsevier, vol. 47(6), pages 963-983, December.
    2. Haufler, Andreas & Wooton, Ian, 1999. "Country size and tax competition for foreign direct investment," Journal of Public Economics, Elsevier, vol. 71(1), pages 121-139, January.
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    6. Michael Keen, 1993. "The welfare economics of tax co-ordination in the European Community : a survey," Fiscal Studies, Institute for Fiscal Studies, vol. 14(2), pages 15-36, February.
    7. Kozul-Wright, Richard & Rowthorn, Robert, 1998. "Spoilt for Choice? Multinational Corporations and the Geography of International Production," Oxford Review of Economic Policy, Oxford University Press and Oxford Review of Economic Policy Limited, vol. 14(2), pages 74-92, Summer.
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    Cited by:

    1. O. Amerighi & G. De Feo, 2009. "Is Competition for FDI Bad for Regional Welfare?," Working Papers 680, Dipartimento Scienze Economiche, Universita' di Bologna.
    2. Ben Ferrett & Andreas Hoefele & Ian Wooton, 2019. "Does tax competition make mobile firms more footloose?," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 52(1), pages 379-402, February.
    3. Jie Ma & Ian Wooton, 2020. "Market size, product differentiation and bidding for new varieties," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 27(2), pages 257-279, April.
    4. Ben Ferrett & Ian Wooton, 2013. "Fiscal Competition for FDI when Bidding is Costly," Economics Bulletin, AccessEcon, vol. 33(3), pages 2202-2208.
    5. Ben Ferrett & Andreas Hoefele, 2015. "On the efficiency of fiscal competition for FDI when incumbent firms are foreign-owned," Economics Bulletin, AccessEcon, vol. 35(1), pages 694-701.
    6. Lapointe, Simon & Morand, Pierre-Henri, 2019. "Subsidy Bidding Wars and the Structure of Multi-Plant Firms," Working Papers 115, VATT Institute for Economic Research.
    7. Sanjo, Yasuo, 2015. "The role of firm ownership in policy competition for foreign direct investment between asymmetric countries," International Review of Economics & Finance, Elsevier, vol. 35(C), pages 110-121.
    8. Oscar Amerighi & Giuseppe Feo, 2017. "Tax competition for foreign direct investments and the nature of the incumbent firm," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 19(4), pages 811-826, August.
    9. Ben Ferrett & Ian Wooton, 2010. "Competing for a duopoly: international trade and tax competition," Canadian Journal of Economics, Canadian Economics Association, vol. 43(3), pages 776-794, August.
    10. Oscar Amerighi & Giuseppe De Feo, 2014. "Competition for FDI and Profit Shifting: On the Effects of Subsidies and Tax Breaks," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 70(3), pages 374-404, September.
    11. Hayato Kato, 2018. "Lobbying and tax competition in an oligopolistic industry: a reverse home-market effect," Spatial Economic Analysis, Taylor & Francis Journals, vol. 13(3), pages 276-295, July.
    12. Ferdinand Mittermaier, 2009. "The Role of Firm Ownership in Tax Competition," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 65(3), pages 297-312, September.
    13. Ben Ferrett & Ian Wooton, 2021. "Targeting FDI," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 28(2), pages 366-385, April.
    14. OKOSHI Hirofumi & Kyikyi Thar, 2023. "Backfired Deregulation of Foreign Ownership Restrictions under Fiscal Competition for Foreign Direct Investment," Discussion papers 23059, Research Institute of Economy, Trade and Industry (RIETI).
    15. Mizuno, Nobuhiro, 2016. "Political structure as a legacy of indirect colonial rule: Bargaining between national governments and rural elites in Africa," Journal of Comparative Economics, Elsevier, vol. 44(4), pages 1023-1039.
    16. 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.
    17. Ben Ferrett & Daniel Gravino, 2021. "Fiscal competition for foreign direct investment with knowledge spillovers and trade costs," The World Economy, Wiley Blackwell, vol. 44(10), pages 2821-2837, October.

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    More about this item

    Keywords

    Tax/subsidy competition; Foreign direct investment; International distribution of firm ownership;
    All these keywords.

    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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