THE SUPPLY OF FOREIGN DIRECT INVESTMENT INCENTIVES: SUBSIDY COMPETITION IN AN OLIGOPOLISTIC FRAMEWORK

Tomáš Havránek ()

Prague Economic Papers, 2009, vol. 2009, issue 2, pages 131-155

Abstract: This paper examines the microeconomic motivation of governments to provide tax incentives for foreign direct investment. Author applies the classical models of oligopoly to subsidy competition, endogenousing investment incentives, but leaving tax rates exogenous. According to the conventional wisdom, subsidy competition leads to overprovision of incen-tives. This paper suggests that, in the oligopolistic framework, supranational coordination can either decrease or increase the supply of subsidies. Further, in the setting of subsidy regulation, the host country’s corporate income tax rate has an ambiguous effect on the provision of incentives.

Keywords: subsidy competition; productivity spillovers; oligopoly; multinational corporations; investment incentives; foreign direct investment (search for similar items in EconPapers)
JEL-codes: F12 F21 F23 H25 H71 H87 (search for similar items in EconPapers)
Date: 2009

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Related works:
Working Paper: The Supply of Foreign Direct Investment Incentives: Subsidy Competition in an Oligopolistic Framework (2008)
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