Tax competition for foreign direct investments and the nature of the incumbent firm

Oscar Amerighi, Giuseppe De Feo

Research output: Contribution to journalArticle

Abstract

We investigate tax/subsidy competition for FDI between countries of different size when a domestic firm is the incumbent in the largest market and we study how the nature (public or private) of the incumbent firm affects policy competition. We show that, differently from the case of a private firm, the country hosting the incumbent always benefits from FDI if the domestic firm is a public welfare-maximizing firm. We also show that the public firm acts as a disciplinary device for the foreign multinational that will always choose the efficient welfare-maximizing location. An efficiency-enhancing role of policy competition may then arise just when the domestic incumbent is a private firm, while tax competition is always wasteful in the presence of a public firm.
LanguageEnglish
JournalJournal of Public Economic Theory
Publication statusAccepted/In press - 24 Jan 2017

Fingerprint

direct investment
taxes
foreign investment
firm
competition policy
welfare
Tax competition
Foreign direct investment
Incumbents
subsidy
efficiency
Public firm
Competition policy
Domestic firms
Private firms
market

Keywords

  • tax competition
  • foregign direct investments
  • incumbent firm
  • subsidy competition
  • public firm
  • welfare-maximising

Cite this

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Tax competition for foreign direct investments and the nature of the incumbent firm. / Amerighi, Oscar; De Feo, Giuseppe.

In: Journal of Public Economic Theory, 24.01.2017.

Research output: Contribution to journalArticle

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