|Haufler, Andreas; Wooton, Ian (1999): Country size and tax competition for foreign direct investment. In: Journal of Public Economics, Vol. 71, No. 1: pp. 121-139|
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We analyse tax competition between two countries of unequal size trying to attract a foreign-owned monopolist. When national 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 be willing to offer a subsidy to the firm. At the same time, the firm prefers to locate in the larger market where it will be able to charge a higher producer price. In equilibrium the large country receives the investment and may even be able to charge a positive tax, if the difference in the sizes of the national markets is sufficiently great. The profit tax paid in equilibrium rises further if countries are given an additional instrument of either a tariff or a consumption tax.
Economics > Chairs > Seminar for Economic Policy
|Subjects:||300 Social sciences > 330 Economics|
|Deposited On:||15. Apr 2014 08:59|
|Last Modified:||29. Apr 2016 09:17|
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Country size and tax competition for foreign direct investment. (deposited 15. Apr 2014 08:59)
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