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Fiscal Federalism and Competitive Bidding for Foreign Investment as a Multistage Game

Raghbendra Jha, Hari Nagarajan and Kolumum R. Nagarajan

Departmental Working Papers from The Australian National University, Arndt-Corden Department of Economics

Abstract: This paper models the behavior of states in a federal country wising to attract foreign firms to locate within their own individual jurisdictions. The essential intertemporal character of this decision is modeled as a multi-stage game to attract such foreign investment in these states. It is found that, when states with unequal political or economic infrastructure compete, the resulting Nash equilibrium profiles are inefficient. Under certain conditions, states that have won once, can “allow” a rival to win in a subsequent stage. The resulting Nash Equilibrium is more efficient. If the option of “allowing” a rival to win is not available, then states may resort to “suicide” strategies defined as outcomes created by history of losses.

Keywords: Fiscal Federalism; Multi stage games; suicide strategies. (search for similar items in EconPapers)
JEL-codes: C70 H73 H77 (search for similar items in EconPapers)
Pages: 35 pages
Date: 2013
New Economics Papers: this item is included in nep-gth and nep-pbe
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