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Inter-jurisdiction subsidy competition for a new production plant: What is the central government optimal policy?
Ist Teil von
Regional science and urban economics, 2007-11, Vol.37 (6), p.688-702
Ort / Verlag
Amsterdam: Elsevier B.V
Erscheinungsjahr
2007
Link zum Volltext
Quelle
Elsevier ScienceDirect Journals Complete
Beschreibungen/Notizen
This paper models inter-jurisdiction competition for foreign direct investment and optimal government policy intervention to protect the national interest. The inter-jurisdiction competition for a multinational has the potential of favouring the multinational and of becoming detrimental for the host country. The central government wants to limit such competition but it cannot tax-discriminate between different types of multinationals. We find that the central government would use tax policy to create asymmetries even when the underlying structure is symmetrical. This offers a novel explanation for the creation of ‘Special Economic Zones’ in many countries, which are well known to be aimed at the attraction of foreign direct investment.