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Unionisation triggers tax incentives to attract foreign direct investment

  • Haufler, Andreas
  • Mittermaier, Ferdinand

This paper analyses tax competition between a unionised and a non-unionised country for the location of an outside firm. We show that unionisation offers an extra incentive for the government to attract a foreign competitor to a concentrated domestic market, in order to affect the behaviour of the domestic union. This results in the unionised country's government offering a tax discount (or a subsidy premium) to the outside firm in excess of what is needed to compensate the investor for the higher union wage. In equilibrium, therefore, the unionised country can attract the outside firm even if it has other location disadvantages, such as a smaller home market.

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File URL: http://epub.ub.uni-muenchen.de/3752/2/Munich_Discussion_Unionisation_triggers_tax_incentives_to_attract_FDI.pdf
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Paper provided by University of Munich, Department of Economics in its series Discussion Papers in Economics with number 3752.

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Date of creation: May 2008
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Handle: RePEc:lmu:muenec:3752
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