Fiscal Competition for FDI when Bidding is Costly
We introduce bidding costs into a standard model of tax/subsidy competition between two potential host countries to attract a monopoly firm’s plant. Such a bidding cost, even if it is infinitesimal, qualitatively alters the resulting equilibrium. At most one country offers fiscal inducements to the firm, and this attenuates the “familiar race to the bottom” in corporate taxes. In general, the successful host country benefits from the resulting absence of active tax/subsidy competition, at the expense of the firm’s owners in the rest of the world.
|Date of creation:||Jun 2013|
|Date of revision:||Jun 2013|
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- Ben Ferrett & Ian Wooton, 2010.
"Tax competition and the international distribution of firm ownership: an invariance result,"
International Tax and Public Finance,
Springer, vol. 17(5), pages 518-531, October.
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- 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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- Joseph E. Stiglitz, 1987. "Technological Change, Sunk Costs, and Competition," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 18(3), pages 883-947.
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