Competition for FDI with vintage investment and agglomeration advantages

Arbeitspapier

Countries compete for new FDI investment, whereas stocks of FDI generate agglomeration benefits and are potentially subject to extortionary taxation. We study the interaction between these aspects in a simple vintage capital framework with discrete time and infinite horizon, focussing on Markov perfect equilibrium in stationary strategies. We show that the tax revenue in the equilibrium is substantial, and higher on “old FDI than on new FDI, even though countries are not allowed to use discriminatory taxation. Moreover, the agglomeration advantage is valuable, but is exploited in the short run and can be unstable over time.

Object Details

• Alternative title: Wettbewerb um ausländische Direktinvestitionen mit "vintage investment" und Agglomerationsvorteilen
• Language: Englisch

References and Relationships

• Bibliographic citation: Series: WZB Discussion Paper ; No. SP II 2008-09

Classification and Topics

• Classification: Wirtschaft ; International Investment; Long-term Capital Movements ; State and Local Taxation, Subsidies, and Revenue
• Subject: Dynamic tax competition ; vintage capital ; agglomeration ; foreign direct investment ; bidding for firms

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Konrad, Kai A. ; Kovenock, Dan
• Event: Veröffentlichung
• (who): Wissenschaftszentrum Berlin für Sozialforschung (WZB)
• (where): Berlin
• (when): 2008

Further information

• Handle: http://hdl.handle.net/10419/51111
• Last update: 10.03.2025, 11:41 AM CET