Unionisation triggers tax incentives to attract foreign direct investment

Arbeitspapier

This paper analyses tax competition between a unionised and a non-unionised country for the location of an outside firm. We show that unionisation offers an extra incentive for the government to attract a foreign competitor to a concen- trated domestic market, in order to affect the behaviour of the domestic union. This results in the unionised country's government offering a tax discount (or a subsidy premium) to the outside firm in excess of what is needed to compensate the investor for the higher union wage. In equilibrium, therefore, the unionised country can attract the outside firm even if it has other location disadvantages, such as a smaller home market.

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• Language: Englisch

References and Relationships

• Bibliographic citation: Series: BGPE Discussion Paper ; No. 52

Classification and Topics

• Classification: Wirtschaft ; Business Taxes and Subsidies including sales and value-added (VAT) ; State and Local Government; Intergovernmental Relations: Interjurisdictional Differentials and Their Effects ; Labor-Management Relations, Trade Unions, and Collective Bargaining: Public Policy
• Subject: tax competition ; trade unions ; foreign direct investment

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Haufler, Andreas ; Mittermaier, Ferdinand
• Event: Veröffentlichung
• (who): Friedrich-Alexander-Universität Erlangen-Nürnberg, Bavarian Graduate Program in Economics (BGPE)
• (where): Nürnberg
• (when): 2008

Further information

• Handle: http://hdl.handle.net/10419/73375