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Regional Tax Coordination and Foreign Direct Investment

  • H aufler, Andreas

    (University of Goettingen and CESifo)

  • Ian Wootton

    (University of Glasgow and CEPR)

The paper analyzes the effects of a regionally coordinated profit tax in a model with three active countries, one of which is not part of the union, and a globally mobile firm. We show that regional tax coordination can lead to two types of welfare gains. First, for investments that would take place in the region in the absence of coordination, this measure can transfer location rents from the firm to the union. Second, by internalizing all of the union's benefits from foreign direct investment, a coordinated policy attracts more investment than when member states act in isolation. Consequently, tax levels may rise or fall under regional coordination.

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Paper provided by Royal Economic Society in its series Royal Economic Society Annual Conference 2002 with number 98.

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Date of creation: 29 Aug 2002
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Handle: RePEc:ecj:ac2002:98
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  18. Markusen, James R. & Morey, Edward R. & Olewiler, Nancy, 1995. "Competition in regional environmental policies when plant locations are endogenous," Journal of Public Economics, Elsevier, vol. 56(1), pages 55-77, January.
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