[go: up one dir, main page]
IDEAS home Printed from https://ideas.repec.org/p/pav/wpaper/161.html
   My bibliography  Save this paper

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

Author

Listed:
  • Oscar Amerighi

    (Departiment of Economic Sciences, University of Bologna)

  • Giuseppe De Feo

    (Department of Economics, University of Pavia)

Abstract
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.

Suggested Citation

  • Oscar Amerighi & Giuseppe De Feo, 2012. "Tax Competition for Foreign Direct Investments and the Nature of the Incumbent Firm," Quaderni di Dipartimento 161, University of Pavia, Department of Economics and Quantitative Methods.
    • Handle: RePEc:pav:wpaper:161
    as

    Download full text from publisher

    File URL: http://dem-web.unipv.it/web/docs/dipeco/quad/ps/RePEc/pav/wpaper/q161.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. repec:bla:scandj:v:101:y:1999:i:4:p:631-49 is not listed on IDEAS
    2. Pedro P. Barros & Luís Cabral, 2000. "Competing for Foreign Direct Investment," Review of International Economics, Wiley Blackwell, vol. 8(2), pages 360-371, May.
    3. James R. Markusen, 2004. "Multinational Firms and the Theory of International Trade," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262633078, April.
    4. Fumagalli, Chiara, 2003. "On the welfare effects of competition for foreign direct investments," European Economic Review, Elsevier, vol. 47(6), pages 963-983, December.
    5. Toshihiro Matsumura, 2003. "Stackelberg Mixed Duopoly with a Foreign Competitor," Bulletin of Economic Research, Wiley Blackwell, vol. 55(3), pages 275-287, July.
    6. Ben Ferrett & Ian Wooton, 2010. "Tax competition and the international distribution of firm ownership: an invariance result," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 17(5), pages 518-531, October.
    7. Bjorvatn, Kjetil & Eckel, Carsten, 2006. "Policy competition for foreign direct investment between asymmetric countries," European Economic Review, Elsevier, vol. 50(7), pages 1891-1907, October.
    8. Norback, Pehr-Johan & Persson, Lars, 2004. "Privatization and foreign competition," Journal of International Economics, Elsevier, vol. 62(2), pages 409-416, March.
    9. Haufler, Andreas & Wooton, Ian, 1999. "Country size and tax competition for foreign direct investment," Journal of Public Economics, Elsevier, vol. 71(1), pages 121-139, January.
    10. Jan I. Haaland & Ian Wooton, 1999. "International Competition for Multinational Investment," Scandinavian Journal of Economics, Wiley Blackwell, vol. 101(4), pages 631-649, December.
    11. repec:bla:reviec:v:8:y:2000:i:2:p:360-71 is not listed on IDEAS
    12. Haufler, Andreas & Wooton, Ian, 1997. "Tax competition for foreign direct investment," Discussion Papers, Series II 329, University of Konstanz, Collaborative Research Centre (SFB) 178 "Internationalization of the Economy".
    13. James R. Markusen, 1995. "The Boundaries of Multinational Enterprises and the Theory of International Trade," Journal of Economic Perspectives, American Economic Association, vol. 9(2), pages 169-189, Spring.
    14. 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.
    15. Keith Head & Thierry Mayer, 2000. "Non-Europe: The magnitude and causes of market fragmentation in the EU," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 136(2), pages 284-314, June.
    16. Haaparanta, Pertti, 1996. "Competition for foreign direct investments," Journal of Public Economics, Elsevier, vol. 63(1), pages 141-153, December.
    17. Debashis Pal & Mark D. White, 1998. "Mixed Oligopoly, Privatization, and Strategic Trade Policy," Southern Economic Journal, John Wiley & Sons, vol. 65(2), pages 264-281, October.
    18. Mehrdad Sepahvand, 2004. "Public Enterprise Strategies in a Market Open to Domestic and International Competition," Annals of Economics and Statistics, GENES, issue 75-76, pages 135-153.
    19. Matthias Lutz, 2004. "Pricing in Segmented Markets, Arbitrage Barriers, and the Law of One Price: Evidence from the European Car Market," Review of International Economics, Wiley Blackwell, vol. 12(3), pages 456-475, August.
    20. Jonathan Haskel & Holger Wolf, 2001. "The Law of One Price—A Case Study," Scandinavian Journal of Economics, Wiley Blackwell, vol. 103(4), pages 545-558, December.
    21. Black, Dan A & Hoyt, William H, 1989. "Bidding for Firms," American Economic Review, American Economic Association, vol. 79(5), pages 1249-1256, December.
    22. repec:bla:scandj:v:103:y:2001:i:4:p:545-58 is not listed on IDEAS
    23. repec:adr:anecst:y:2004:i:75-76:p:07 is not listed on IDEAS
    24. de Fraja, Giovanni & Delbono, Flavio, 1989. "Alternative Strategies of a Public Enterprise in Oligopoly," Oxford Economic Papers, Oxford University Press, vol. 41(2), pages 302-311, April.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Jie Ma & Ian Wooton, 2020. "Market size, product differentiation and bidding for new varieties," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 27(2), pages 257-279, April.
    2. Junichi Haraguchi & Toshihiro Matsumura, 2020. "Endogenous public and private leadership with diverging social and private marginal costs," Manchester School, University of Manchester, vol. 88(5), pages 699-730, September.
    3. OKOSHI Hirofumi & MUKUNOKI Hiroshi, 2024. "Keep Your Friends Close and Your Enemies Closer: Network externality and tax competition," Discussion papers 24024, Research Institute of Economy, Trade and Industry (RIETI).
    4. Steven Brakman & Harry Garretsen & Charles van Marrewijk & Arjen van Witteloostuijn, 2023. "The location of cross‐border and national mergers and acquisitions within the United States," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 32(1), pages 177-206, January.
    5. OKOSHI Hirofumi & Kyikyi Thar, 2023. "Backfired Deregulation of Foreign Ownership Restrictions under Fiscal Competition for Foreign Direct Investment," Discussion papers 23059, Research Institute of Economy, Trade and Industry (RIETI).
    6. Thanh Tam Nguyen-Huu & Ngoc‐sang Pham, 2023. "FDI spillovers, New Industry Development, and Economic Growth," Post-Print hal-04240260, HAL.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. O. Amerighi & G. De Feo, 2007. "Competition for FDI in the Presence of a Public Firm and the Effects of Privatization," Working Papers 605, Dipartimento Scienze Economiche, Universita' di Bologna.
    2. Oscar Amerighi & Giuseppe De Feo, 2000. "On the FDI-Attracting Property of Privatization," Working Papers 3_214, Dipartimento di Scienze Economiche e Statistiche, Università degli Studi di Salerno.
    3. Taiji Furusawa & Kazumi Hori & Ian Wooton, 2015. "A race beyond the bottom: the nature of bidding for a firm," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 22(3), pages 452-475, June.
    4. Ben Ferrett & Ian Wooton, 2010. "Competing for a duopoly: international trade and tax competition," Canadian Journal of Economics, Canadian Economics Association, vol. 43(3), pages 776-794, August.
    5. Ronald B. Davies & Hartmut Egger & Peter Egger, 2003. "Tax Competition for International Producers and the Mode of Foreign Market Entry," University of Oregon Economics Department Working Papers 2006-19, University of Oregon Economics Department, revised 10 Jun 2003.
    6. Hopp, Daniel & Kriebel, Michael, 2019. "The political economy of interregional competition for firms," Regional Science and Urban Economics, Elsevier, vol. 79(C).
    7. Ben Ferrett & Andreas Hoefele & Ian Wooton, 2019. "Does tax competition make mobile firms more footloose?," Canadian Journal of Economics, Canadian Economics Association, vol. 52(1), pages 379-402, February.
    8. Haufler, Andreas & Wooton, Ian, 2001. "Regional tax coordination and foreign direct investment," University of Göttingen Working Papers in Economics 14, University of Goettingen, Department of Economics.
    9. Haufler, Andreas & Wooton, Ian, 2006. "The effects of regional tax and subsidy coordination on foreign direct investment," European Economic Review, Elsevier, vol. 50(2), pages 285-305, February.
    10. Ben Ferrett & Daniel Gravino, 2021. "Fiscal competition for foreign direct investment with knowledge spillovers and trade costs," The World Economy, Wiley Blackwell, vol. 44(10), pages 2821-2837, October.
    11. Jie Ma & Ian Wooton, 2020. "Market size, product differentiation and bidding for new varieties," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 27(2), pages 257-279, April.
    12. O. Amerighi & S. Peralta, 2007. "Exports Versus Horizontal Foreign Direct Investment with Profit Shifting," Working Papers 604, Dipartimento Scienze Economiche, Universita' di Bologna.
    13. Goran Vukšić, 2013. "Developing countries in competition for foreign investment," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 22(3), pages 351-376, April.
    14. Daniel Hopp & Michael Kriebel, 2016. "The political economy of interregional competition for firms," CQE Working Papers 5616, Center for Quantitative Economics (CQE), University of Muenster.
    15. Hopp, Daniel & Kriebel, Michael, 2016. "The political economy of interregional competition for firms," VfS Annual Conference 2016 (Augsburg): Demographic Change 145693, Verein für Socialpolitik / German Economic Association.
    16. Jacques, Armel, 2006. "Des firmes multinationales : un survol de la littérature microéconomique," L'Actualité Economique, Société Canadienne de Science Economique, vol. 82(4), pages 643-691, décembre.
    17. Fumagalli, Chiara, 2003. "On the welfare effects of competition for foreign direct investments," European Economic Review, Elsevier, vol. 47(6), pages 963-983, December.
    18. Ying, Qianwei & Yang, Quanfa, 2007. "The role of information in the competition for FDI under uncertainty," Research in Economics, Elsevier, vol. 61(2), pages 62-70, June.
    19. Sanjo, Yasuo, 2015. "The role of firm ownership in policy competition for foreign direct investment between asymmetric countries," International Review of Economics & Finance, Elsevier, vol. 35(C), pages 110-121.
    20. Haufler, Andreas & Wooton, Ian, 2010. "Competition for firms in an oligopolistic industry: The impact of economic integration," Journal of International Economics, Elsevier, vol. 80(2), pages 239-248, March.

    More about this item

    Keywords

    Foreign Direct Investment; Tax/subsidy competition; Public firm; International mixed oligopoly;
    All these keywords.

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • H73 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Interjurisdictional Differentials and Their Effects
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L33 - Industrial Organization - - Nonprofit Organizations and Public Enterprise - - - Comparison of Public and Private Enterprise and Nonprofit Institutions; Privatization; Contracting Out

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:pav:wpaper:161. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Paolo Bonomolo (email available below). General contact details of provider: https://edirc.repec.org/data/dppavit.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.