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Bidding for Investment Projects: Smart Public Policy or Corporate Welfare?

  • Johannes Van Biesebroeck

Recently, several governments in Canada have shown an increased willingness to subsidize private investment projects, especially in the manufacturing sector, to the dismay of tax conservatives. I evaluate under what circumstances these government subsidies make sense, paying particular attention to interjurisdictional competition. I show what governments should expect to pay when they join a bidding war and derive the expected welfare gain. The analysis looks in detail at the efforts of the Ontario and federal governments to attract new investments in the automobile sector.

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Paper provided by University of Toronto, Department of Economics in its series Working Papers with number tecipa-344.

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Length: 28 pages
Date of creation: 16 Nov 2008
Date of revision:
Handle: RePEc:tor:tecipa:tecipa-344
Contact details of provider: Postal: 150 St. George Street, Toronto, Ontario
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  1. Michael Greenstone & Richard Hornbeck & Enrico Moretti, 2008. "Identifying Agglomeration Spillovers: Evidence from Million Dollar Plants," NBER Working Papers 13833, National Bureau of Economic Research, Inc.
  2. Jaffe, A.B. & Trajtenberg, M., 1992. "Geographic Localization of Knowledge Spillovers as Evidenced by Patent Citations," Papers 14-92, Tel Aviv.
  3. Aamir Rafique HASHMI & Johannes VAN BIESEBROECK, 2012. "The relationship between market structure and innovation in industry equilibrium: a case study of the global automobile industry," Center for Economic Studies - Discussion papers ces12.01, Katholieke Universiteit Leuven, Centrum voor Economische Studiën.
  4. Blomström, Magnus & Kokko, Ari, 2003. "The Economics of Foreign Direct Investment Incentives," CEPR Discussion Papers 3775, C.E.P.R. Discussion Papers.
  5. Head, C. Keith & Ries, John C. & Swenson, Deborah L., 1999. "Attracting foreign manufacturing: Investment promotion and agglomeration," Regional Science and Urban Economics, Elsevier, vol. 29(2), pages 197-218, March.
  6. James A. Brander & Barbara J. Spencer, 1980. "Tariffs and the Extraction of Foreign Monopoly Rents under Potential Entry," Working Papers 414, Queen's University, Department of Economics.
  7. Black, Dan A & Hoyt, William H, 1989. "Bidding for Firms," American Economic Review, American Economic Association, vol. 79(5), pages 1249-56, December.
  8. Thomas H. Klier, 1999. "Agglomeration in the U.S. auto supplier industry," Economic Perspectives, Federal Reserve Bank of Chicago, issue Q I, pages 18-34.
  9. Ian King & R. Preston McAfee & Linda Welling, 1993. "Industrial Blackmail: Dynamic Tax Competition and Public Investment," Canadian Journal of Economics, Canadian Economics Association, vol. 26(3), pages 590-608, August.
  10. Johannes Van Biesebroeck, 2008. "Governments at the bidding table," New Zealand Economic Papers, Taylor & Francis Journals, vol. 42(2), pages 213-232.
  11. Thomas J. Holmes, 1996. "How industries migrate when agglomeration economies are important," Staff Report 219, Federal Reserve Bank of Minneapolis.
  12. Johannes Van Biesebroeck & Aamir Hashmi, 2007. "Market Structure and Innovation: A Dynamic Analysis of the Global Automobile Industry," 2007 Meeting Papers 362, Society for Economic Dynamics.
  13. Barros, Pedro P & Cabral, Luis, 2000. "Competing for Foreign Direct Investment," Review of International Economics, Wiley Blackwell, vol. 8(2), pages 360-71, May.
  14. Michael Greenstone & Enrico Moretti, 2003. "Bidding for Industrial Plants: Does Winning a 'Million Dollar Plant' Increase Welfare?," NBER Working Papers 9844, National Bureau of Economic Research, Inc.
  15. Damien D. Neven & Georges Siotis, 1993. "Foreign direct investment in the european community: Some policy issues," ULB Institutional Repository 2013/184831, ULB -- Universite Libre de Bruxelles.
  16. Edward L. Glaeser, 2001. "The Economics of Location-Based Tax Incentives," Harvard Institute of Economic Research Working Papers 1932, Harvard - Institute of Economic Research.
  17. Maureen Appel Molot, 2005. "Location Incentives and Inter-state Competition for FDI: Bidding Wars in the Automotive Industry," Chapters, in: Governance, Multinationals and Growth, chapter 13 Edward Elgar.
  18. Bev Dahlby, 2005. "A Framework for Evaluating Provincial R&D Tax Subsidies," Canadian Public Policy, University of Toronto Press, vol. 31(1), pages 45-58, March.
  19. Milgrom, Paul & Roberts, John, 1990. "The Economics of Modern Manufacturing: Technology, Strategy, and Organization," American Economic Review, American Economic Association, vol. 80(3), pages 511-28, June.
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