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Regional Tax Coordination and Foreign Direct Investment

  • Andreas Haufler
  • Ian Wooton

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 Business School - Economics, University of Glasgow in its series Working Papers with number 2001_11.

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Date of creation: Oct 2001
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Handle: RePEc:gla:glaewp:2001_11
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