Tax Competition for Foreign Direct Investments and the Nature of the Incumbent Firm

Arbeitspapier

In this paper we investigate tax/subsidy competition for FDI between countries of different size when a domestic firm is the incumbent in the largest market. We investigate how the nature (public or private) of the incumbent firm affects policy competition between the two governments seeking to attract FDI. We show that the country hosting the incumbent always benefits from FDI if the domestic firm is a public welfare-maximizing firm, while its welfare may decrease when it is a private firm, as already shown by Bjorvatn and Eckel (2006). We also show that, contrary to the case of a private domestic incumbent, a public firm acts as a disciplinary device for the foreign multinational that will always choose the efficient welfare-maximizer location. Finally, an efficiency-enhancing role of policy competition may only arise when the domestic incumbent is a private firm, while tax competition is always wasteful when the incumbent is a public firm.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Quaderni di Dipartimento ; No. 161

Classification and Topics

• Classification: Wirtschaft ; Models of Trade with Imperfect Competition and Scale Economies; Fragmentation ; Multinational Firms; International Business ; Business Taxes and Subsidies including sales and value-added (VAT) ; State and Local Government; Intergovernmental Relations: Interjurisdictional Differentials and Their Effects ; Oligopoly and Other Imperfect Markets ; Comparison of Public and Private Enterprises and Nonprofit Institutions; Privatization; Contracting Out
• Subject: Foreign Direct Investment ; Tax/subsidy competition ; Public firm ; International mixed oligopoly

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Amerighi, Oscar ; De Feo, Giuseppe
• Event: Veröffentlichung
• (who): Università degli Studi di Pavia, Dipartimento di Economia Politica e Metodi Quantitativi (EPMQ)
• (where): Pavia
• (when): 2012

Further information

• Handle: http://hdl.handle.net/10419/95303
• Last update: 10.03.2025, 11:42 AM CET