Inter-jurisdiction subsidy competition for a new production plant: What is the central government optimal policy?

O. J. Parcero

    Research output: Contribution to journalArticlepeer-review

    3 Citations (Scopus)

    Abstract

    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. (C) 2007 Elsevier B.V. All rights reserved.

    Original languageEnglish
    Pages (from-to)688-702
    Number of pages15
    JournalRegional Science and Urban Economics
    Volume37
    DOIs
    Publication statusPublished - Nov 2007

    Keywords

    • bargaining
    • subsidy
    • regional
    • competition
    • foreign direct investment (FDI)
    • TAX
    • INVESTMENT

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