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Regional Tax Coordination and Foreign Direct Investment

  • Haufler, Andreas
  • Wooton, Ian

This paper analyses the effects of a regionally coordinated corporate income 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 gain. First, for investments that would take place in the union in the absence of coordination, a coordinated tax increase can transfer location rents from the firm to the union. Second, by internalising all of the union’s benefits from foreign direct investment, a coordinated tax reduction can attract more welfare-enhancing investment than when member states act in isolation. Depending on which motive dominates, tax levels may thus rise or fall under regional coordination.

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File URL: http://epub.ub.uni-muenchen.de/61/1/haufler.pdf
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Paper provided by University of Munich, Department of Economics in its series Discussion Papers in Economics with number 61.

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Date of creation: Jul 2003
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Handle: RePEc:lmu:muenec:61
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  11. Andreas Haufler & Ian Wooton, . "Country Size and Tax Competition for Foreign Direct Investment," Working Papers 9702, Business School - Economics, University of Glasgow.
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  14. Fumagalli, Chiara, 2003. "On the welfare effects of competition for foreign direct investments," European Economic Review, Elsevier, vol. 47(6), pages 963-983, December.
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  18. Michael Devereux & Rachel Griffith, 1996. "Taxes and the location of production: evidence from a panel of US multinationals," IFS Working Papers W96/14, Institute for Fiscal Studies.
  19. Markusen, James R. & Morey, Edward R. & Olewiler, Nancy, 1995. "Competition in regional environmental policies when plant locations are endogenous," Journal of Public Economics, Elsevier, vol. 56(1), pages 55-77, January.
  20. Michael Rauscher, 1995. "Environmental regulation and the location of polluting industries," International Tax and Public Finance, Springer, vol. 2(2), pages 229-244, August.
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  23. Michael Keen, 1993. "The welfare economics of tax co-ordination in the European Community : a survey," Fiscal Studies, Institute for Fiscal Studies, vol. 14(2), pages 15-36, February.
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