IDEAS home Printed from https://ideas.repec.org/p/pra/mprapa/10770.html
   My bibliography  Save this paper

The Supply of Foreign Direct Investment Incentives: Subsidy Competition in an Oligopolistic Framework

Author

Listed:
  • Havranek, Tomas

Abstract

This paper examines the microeconomic motivation of governments to provide tax incentives for foreign direct investment. Author applies the classical models of oligopoly to subsidy competition, endogenousing investment incentives, but leaving tax rates exogenous. According to the conventional wisdom, subsidy competition leads to overprovision of incentives. This paper suggests that, in the oligopolistic framework, supranational coordination can either decrease or increase the supply of subsidies. Further, in the setting of subsidy regulation, the host country's corporate income tax rate has an ambiguous effect on the provision of incentives.

Suggested Citation

  • Havranek, Tomas, 2008. "The Supply of Foreign Direct Investment Incentives: Subsidy Competition in an Oligopolistic Framework," MPRA Paper 10770, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:10770
    as

    Download full text from publisher

    File URL: https://mpra.ub.uni-muenchen.de/10770/1/MPRA_paper_10770.pdf
    File Function: original version
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. repec:bla:scandj:v:101:y:1999:i:4:p:631-49 is not listed on IDEAS
    2. Pedro P. Barros & Luís Cabral, 2000. "Competing for Foreign Direct Investment," Review of International Economics, Wiley Blackwell, vol. 8(2), pages 360-371, May.
    3. Andrew Charlton, 2003. "Incentive Bidding for Mobile Investment: Economic Consequences and Potential Responses," OECD Development Centre Working Papers 203, OECD Publishing.
    4. Blomström, Magnus & Kokko, Ari, 2003. "The Economics of Foreign Direct Investment Incentives," EIJS Working Paper Series 168, Stockholm School of Economics, The European Institute of Japanese Studies.
    5. 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.
    6. Jan I. Haaland & Ian Wooton, 1999. "International Competition for Multinational Investment," Scandinavian Journal of Economics, Wiley Blackwell, vol. 101(4), pages 631-649, December.
    7. Enrico Pennings, "undated". "How to Maximize Domestic Benefits from Irreversible Foreign Investments," Working Papers 205, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
    8. repec:bla:reviec:v:8:y:2000:i:2:p:360-71 is not listed on IDEAS
    9. Timothy Besley & Paul Seabright, 1999. "The effects and policy implications of state aids to industry: an economic analysis," Economic Policy, CEPR, CESifo, Sciences Po;CES;MSH, vol. 14(28), pages 14-53.
    10. Haaparanta, Pertti, 1996. "Competition for foreign direct investments," Journal of Public Economics, Elsevier, vol. 63(1), pages 141-153, December.
    11. Holger Görg & Eric Strobl, 2016. "Multinational Companies And Productivity Spillovers: A Meta-Analysis," World Scientific Book Chapters, in: MULTINATIONAL ENTERPRISES AND HOST COUNTRY DEVELOPMENT Volume 53: World Scientific Studies in International Economics, chapter 8, pages 145-161, World Scientific Publishing Co. Pte. Ltd..
    12. Haufler, Andreas & Wooton, Ian, 2006. "The effects of regional tax and subsidy coordination on foreign direct investment," European Economic Review, Elsevier, vol. 50(2), pages 285-305, February.
    13. Rossitza B. Wooster & David S. Diebel, 2010. "Productivity Spillovers from Foreign Direct Investment in Developing Countries: A Meta‐Regression Analysis," Review of Development Economics, Wiley Blackwell, vol. 14(3), pages 640-655, August.
    14. Tomáš Havránek & Zuzana Iršová, 2008. "Intra-Industry Spillovers from Inward FDI: A Meta-Regression Analysis," Working Papers IES 2008/08, Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies, revised Jun 2008.
    15. Louis T., Jr. Wells & Nancy J. Allen & Jacques Morisset & Neda Pirnia, 2001. "Using Tax Incentives to Compete for Foreign Investment : Are They Worth the Costs?," World Bank Publications - Books, The World Bank Group, number 13979, December.
    16. repec:bla:rdevec:v:14:y:2010:i:s1:p:640-655 is not listed on IDEAS
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. repec:cnb:ocpubv:rb09/2 is not listed on IDEAS
    2. Tomáš HAVRà NEK & Zuzana IRÅ OVÃ, 2010. "On the Intensity of International Subsidy Competition for FDI," Theoretical and Applied Economics, Asociatia Generala a Economistilor din Romania / Editura Economica, vol. 2(2(543)), pages 25-54, February.
    3. Daniel Gonzalez Olivares & Rafael Salvador Espinosa Ramirez, 2018. "Inversion extranjera directa y fusiones domesticas en presencia de productos diferenciados: Un analisis de bienestar social y politica publica," EconoQuantum, Revista de Economia y Finanzas, Universidad de Guadalajara, Centro Universitario de Ciencias Economico Administrativas, Departamento de Metodos Cuantitativos y Maestria en Economia., vol. 15(1), pages 73-98, Enero-Jun.
    4. Li Yin & Narushige Shiode, 2014. "3D spatial-temporal GIS modeling of urban environments to support design and planning processes," Journal of Urbanism: International Research on Placemaking and Urban Sustainability, Taylor & Francis Journals, vol. 7(2), pages 152-169, June.
    5. Lenka Janíčková & Veronika Baranová, 2013. "Vliv efektivních daňových sazeb a jejich komponent na přímé zahraniční investice - případ členských zemí EU [Impact of Effective Tax Rates and Its Components on Foreign Direct Investment - The Case," Politická ekonomie, Prague University of Economics and Business, vol. 2013(2), pages 209-228.
    6. Tomáš Havránek, 2009. "Subsidy Competition for FDI: Fierce or Weak?," Working Papers IES 2009/07, Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies, revised Feb 2009.
    7. repec:cnb:ocpubv:rb10/1 is not listed on IDEAS
    8. Adriana Giurgiu, 2012. "Investment Incentives and the Global Competition for Capital – By K.P. Thomas," Journal of Common Market Studies, Wiley Blackwell, vol. 50(1), pages 190-190, January.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. C. Dembour, 2008. "Competition for Business Location: A Survey," Journal of Industry, Competition and Trade, Springer, vol. 8(2), pages 89-111, June.
    2. O. Amerighi & G. De Feo, 2007. "Competition for FDI in the Presence of a Public Firm and the Effects of Privatization," Working Papers 605, Dipartimento Scienze Economiche, Universita' di Bologna.
    3. Jie Ma & Ian Wooton, 2020. "Market size, product differentiation and bidding for new varieties," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 27(2), pages 257-279, April.
    4. Bjorvatn, Kjetil & Eckel, Carsten, 2006. "Policy competition for foreign direct investment between asymmetric countries," European Economic Review, Elsevier, vol. 50(7), pages 1891-1907, October.
    5. Jie Ma, 2013. "Market Size, Local Sourcing and Policy Competition for Foreign Direct Investment," Review of International Economics, Wiley Blackwell, vol. 21(5), pages 984-995, November.
    6. Haufler, Andreas & Wooton, Ian, 2001. "Regional tax coordination and foreign direct investment," University of Göttingen Working Papers in Economics 14, University of Goettingen, Department of Economics.
    7. Fumagalli, Chiara, 2003. "On the welfare effects of competition for foreign direct investments," European Economic Review, Elsevier, vol. 47(6), pages 963-983, December.
    8. Ying, Qianwei & Yang, Quanfa, 2007. "The role of information in the competition for FDI under uncertainty," Research in Economics, Elsevier, vol. 61(2), pages 62-70, June.
    9. Chor, Davin, 2009. "Subsidies for FDI: Implications from a model with heterogeneous firms," Journal of International Economics, Elsevier, vol. 78(1), pages 113-125, June.
    10. Oscar Amerighi & Giuseppe Feo, 2017. "Tax competition for foreign direct investments and the nature of the incumbent firm," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 19(4), pages 811-826, August.
    11. Müller, Thomas, 2003. "The Multinational Enterprise," Munich Dissertations in Economics 799, University of Munich, Department of Economics.
    12. Nora Paulus & Patrice Pieretti & Benteng Zou, 2021. "Is a Dynamic Approach to Tax Games Relevant?," Annals of Economics and Statistics, GENES, issue 144, pages 113-138.
    13. Oscar Amerighi & Giuseppe De Feo, 2014. "Competition for FDI and Profit Shifting: On the Effects of Subsidies and Tax Breaks," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 70(3), pages 374-404, September.
    14. Hopp, Daniel & Kriebel, Michael, 2019. "The political economy of interregional competition for firms," Regional Science and Urban Economics, Elsevier, vol. 79(C).
    15. Sanjo, Yasuo, 2012. "Country risk, country size, and tax competition for foreign direct investment," International Review of Economics & Finance, Elsevier, vol. 21(1), pages 292-301.
    16. Ben Ferrett & Andreas Hoefele & Ian Wooton, 2019. "Does tax competition make mobile firms more footloose?," Canadian Journal of Economics, Canadian Economics Association, vol. 52(1), pages 379-402, February.
    17. Blomström, Magnus & Kokko, Ari, 2003. "The Economics of Foreign Direct Investment Incentives," EIJS Working Paper Series 168, Stockholm School of Economics, The European Institute of Japanese Studies.
    18. OKOSHI Hirofumi & MUKUNOKI Hiroshi, 2024. "Keep Your Friends Close and Your Enemies Closer: Network externality and tax competition," Discussion papers 24024, Research Institute of Economy, Trade and Industry (RIETI).
    19. Alessandro Turrini & Dieter M. Urban, 2001. "For Whom is MAI? A theoretical Perspective on Multilateral Agreements on Investments," Development Working Papers 151, Centro Studi Luca d'Agliano, University of Milano.
    20. Johannes Becker & Andrea Schneider, 2019. "Bidding for Firms with Unknown Characteristics," Scandinavian Journal of Economics, Wiley Blackwell, vol. 121(3), pages 1222-1243, July.

    More about this item

    Keywords

    Investment incentives; Subsidy competition; Productivity spillovers; Oligopoly; Foreign direct investment; Multinational corporations;
    All these keywords.

    JEL classification:

    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:pra:mprapa:10770. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Joachim Winter (email available below). General contact details of provider: https://edirc.repec.org/data/vfmunde.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.