Does tax competition make mobile firms more footloose?

Existing analyses of fiscal competition for foreign direct investment (FDI) often assume a one-shot interaction between governments and the firm within a static
environment where the firm makes a permanent location choice. We examine a
two-period regional model where economic geography evolves, giving the firm
an incentive to relocate between periods. Government competition for FDI leads
the firm to make efficient location choices, with relocation "more likely" in the
presence of international tax competition, because the winning country’s bid
absorbs some of the firm’s relocation costs. With more time periods, tax
competition induces firm relocation sooner than in its absence.