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Regional tax coordination and foreign direct investment

  • Haufler, Andreas
  • Wooton, Ian

The paper analyzes the effects of a regionally coordinated profit 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 gains. First, for investments that would take place in the region in the absence of coordination, this measure can transfer location rents from the firm to the union. Second, by internalizing all of the union's benefits from foreign direct investment, a coordinated policy attracts more investment than when member states act in isolation. Consequently, tax levels may rise or fall under regional coordination.

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File URL: https://www.econstor.eu/bitstream/10419/31990/1/500240345.pdf
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Paper provided by University of Goettingen, Department of Economics in its series Center for European, Governance and Economic Development Research Discussion Papers with number 14.

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Date of creation: 2001
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Handle: RePEc:zbw:cegedp:14
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  4. 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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  13. 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.
  14. Konrad, Kai A. & Schjelderup, Guttorm, 1999. "Fortress Building in Global Tax Competition," Journal of Urban Economics, Elsevier, vol. 46(1), pages 156-167, July.
  15. Görg, Holger & Strobl, Eric, 2002. "Spillovers From Foreign Firms Through Worker Mobility: An Empirical Investigation," IZA Discussion Papers 591, Institute for the Study of Labor (IZA).
  16. 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.
  17. Peter Birch Sørensen, 2001. "International Tax Coordination: Regionalism Versus Globalism," CESifo Working Paper Series 483, CESifo Group Munich.
  18. Keen, Michael, 2001. "Preferential Regimes Can Make Tax Competition Less Harmful," National Tax Journal, National Tax Association, vol. 54(n. 4), pages 757-62, December.
  19. Ignatius J. Horstmann & James R. Markusen, 1990. "Endogenous Market Structures in International Trade," NBER Working Papers 3283, National Bureau of Economic Research, Inc.
  20. Haaparanta, Pertti, 1996. "Competition for foreign direct investments," Journal of Public Economics, Elsevier, vol. 63(1), pages 141-153, December.
  21. 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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