Competition for foreign direct investment when countries are not sure of site values

Koray Kiymaz and Leon Taylor ()
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Koray Kiymaz: McKinsey & Company & Tulane University

International Trade from EconWPA

Abstract: The fiscal tug-of-war between two countries to play host to a foreign- owned firm is like a Nash game. Suppose that the countries are not sure how much the firm values the sites that they offer to it. Also suppose that the countries fashion their expectation of site value by assigning the same likelihood to each value that they deem possible. Then, if they are quite unsure about site values, they will offer small subsidies to the firm. If they are pretty sure about site values, they will offer large subsidies. Here is the intuition behind the results: When a country is unsure about the value of its site, it is also unsure that a stingy offer will drive the firm to its rival. So it may take the chance and make a stingy offer rather than a generous one.

Keywords: tax competition; foreign direct investment (search for similar items in EconPapers)
JEL-codes: F21 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ifn
Date: 1998-12-08, Revised 1999-05-19
Note: Type of Document - LaTex (DVI); prepared on IBM PC compatible; to print on HP Laserjet; pages: 20; figures: none
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Related works:
Journal Article: Competition for foreign direct investment when countries are not sure of site values (2000)
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Persistent link: http://EconPapers.repec.org/RePEc:wpa:wuwpit:9812001

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