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Subsidy Bidding Wars and the Structure of Multi-Plant Firms

Author

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  • Simon Lapointe

    (LBNC - Laboratoire Biens, Normes, Contrats - AU - Université d'Avignon et des Pays du Vaucluse)

  • Pierre-Henri Morand

    () (LBNC - Laboratoire Biens, Normes, Contrats - AU - Université d'Avignon et des Pays du Vaucluse)

Abstract

Governments spend large amounts of money to attract firms to their territory, often resulting from bidding wars against other regions. Previous papers show that such bidding wars can improve social welfare by allocating the investment to the regions that value it the most. In this paper, we depart from the usual assumption of exogenous, single-plant investment. We show that in this context, bidding wars incite the firm to allocate its investment strategically, by investing more and differentiating the plants. In turn, the firm receives larger subsidies. Despite these distortions, bidding wars may remain socially optimal, as in simpler models.
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Suggested Citation

  • Simon Lapointe & Pierre-Henri Morand, 2019. "Subsidy Bidding Wars and the Structure of Multi-Plant Firms," Working Papers hal-01989433, HAL.
  • Handle: RePEc:hal:wpaper:hal-01989433
    Note: View the original document on HAL open archive server: https://hal.archives-ouvertes.fr/hal-01989433
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    References listed on IDEAS

    as
    1. Kristian Behrens & Pierre M. Picard, 2008. "Bidding for Horizontal Multinationals," Journal of the European Economic Association, MIT Press, vol. 6(6), pages 1244-1278, December.
    2. Chris Doyle & Sweder Wijnbergen, 1994. "Taxation of foreign multinationals: A sequential bargaining approach to tax holidays," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 1(3), pages 211-225, October.
    3. Ben Ferrett & Ian Wooton, 2010. "Tax competition and the international distribution of firm ownership: an invariance result," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 17(5), pages 518-531, October.
    4. Ekholm, Karolina & Forslid, Rikard, 2001. " Trade and Location with Horizontal and Vertical Multi-region Firms," Scandinavian Journal of Economics, Wiley Blackwell, vol. 103(1), pages 101-118, March.
    5. Davies, Ronald B., 2005. "State tax competition for foreign direct investment: a winnable war?," Journal of International Economics, Elsevier, vol. 67(2), pages 498-512, December.
    6. Barros, Pedro P & Cabral, Luis, 2000. "Competing for Foreign Direct Investment," Review of International Economics, Wiley Blackwell, vol. 8(2), pages 360-371, May.
    7. Ben Ferrett & Ian Wooton, 2013. "Fiscal Competition for FDI when Bidding is Costly," Economics Bulletin, AccessEcon, vol. 33(3), pages 2202-2208.
    8. Bond, Eric W & Samuelson, Larry, 1986. "Tax Holidays as Signals," American Economic Review, American Economic Association, vol. 76(4), pages 820-826, September.
    9. Adams, Brian, 2016. "The employment impact of motor vehicle assembly plant openings," Regional Science and Urban Economics, Elsevier, vol. 58(C), pages 57-70.
    10. Kelly D. Edmiston, 2004. "Tax Uncertainty and Investment: A Cross-Country Empirical Examination," Economic Inquiry, Western Economic Association International, vol. 42(3), pages 425-440, July.
    11. Caroline Buts & Marc Jegers & Dimi Jottier, 2012. "The effect of subsidising firms on voting behaviour: Evidence from Fremish elections," European Journal of Government and Economics, Europa Grande, vol. 1(1), pages 30-43, June.
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    More about this item

    JEL classification:

    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • H71 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Taxation, Subsidies, and Revenue
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • L23 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Organization of Production

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