Citation

Discussion Paper Details

Please find the details for DP1583 in an easy to copy and paste format below:

Full Details   |   Bibliographic Reference

Full Details

Title: Tax Competition for Foreign Direct Investment

Author(s): Andreas Haufler and Ian Wooton

Publication Date: February 1997

Keyword(s): Economic Integration, Foreign Direct Investment, Regional Location and Tax Competition

Programme Area(s): International Trade and Regional Economics

Abstract: This paper analyses tax competition between two countries of unequal size trying to attract a foreign-owned monopolist. When regional governments have only a lump-sum profit tax (subsidy) at their disposal, but face exogenous and identical transport costs for imports, then both countries will always offer to subsidize the firm. Furthermore, the maximum subsidy is greater in the larger region. If countries are given an additional instrument (either a tariff or a consumption tax), however, then the larger country will no longer underbid its smaller rival and its best offer may involve a positive profit tax. In both cases the equilibirum outcome is that the firm locates in the larger market, paying a profit tax that is increasing in the relative size of this market and which is made greater when the tariff (consumption tax) instrument is permitted.

For full details and related downloads, please visit: https://cepr.org/active/publications/discussion_papers/dp.php?dpno=1583

Bibliographic Reference

Haufler, A and Wooton, I. 1997. 'Tax Competition for Foreign Direct Investment'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=1583