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

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  • Johannes Van Biesebroeck

Abstract

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.

Suggested Citation

  • Johannes Van Biesebroeck, 2008. "Bidding for Investment Projects: Smart Public Policy or Corporate Welfare?," Working Papers tecipa-344, University of Toronto, Department of Economics.
  • Handle: RePEc:tor:tecipa:tecipa-344
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    References listed on IDEAS

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    Cited by:

    1. Hyun-Ju Koh & Ferdinand Mittermaier, 2009. "The winner gives it all: Unions, tax competition and offshoring," Working Papers 079, Bavarian Graduate Program in Economics (BGPE).

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    More about this item

    Keywords

    Foreign Direct Investment; government competition; subsidies; investment incentives; automobile industry; opportunity cost;

    JEL classification:

    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • L62 - Industrial Organization - - Industry Studies: Manufacturing - - - Automobiles; Other Transportation Equipment; Related Parts and Equipment
    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions

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