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Estimating the rivalness of state-level inward FDI

  • Marius Brülhart

    ()

    (Université de Lausanne & Centre for Economic Policy Research (CEPR))

  • Kurt Schmidheiny

    ()

    (Universität Basel & Centre for Economic Policy Research (CEPR) & CESifo)

Decentralized fiscal decision making is more likely to be optimal if regional tax bases are non-rival, in the sense that one region's gain is no other relevant region's loss. We develop a method for estimating the rivalness of tax bases using the underlying structures of the conditional logit, Poisson and nested logit models. We use this method to estimate the effect of state-level capital taxation on U.S. inward foreign direct investment. While the results are rather noisy, the assumption of perfect non-rivalenss can in some cases be rejected, but the assumption of perfect rivalness cannot. Competition over FDI across U.S. states may well be a zero-sum game.

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File URL: http://www.ieb.ub.edu/aplicacio/fitxers/2011/12/Doc2011-36.pdf
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Paper provided by Institut d'Economia de Barcelona (IEB) in its series Working Papers with number 2011/36.

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Length: 25 pages
Date of creation: 2011
Date of revision:
Handle: RePEc:ieb:wpaper:2011/12/doc2011-36
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  1. Crozet, Matthieu & Mayer, Thierry & Mucchielli, Jean-Louis, 2004. "How do firms agglomerate? A study of FDI in France," Regional Science and Urban Economics, Elsevier, vol. 34(1), pages 27-54, January.
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