Inter-jurisdiction subsidy competition for a new production plant: What is the central government optimal policy?

Osiris Parcero

Regional Science and Urban Economics, 2007, vol. 37, issue 6, 688-702

Abstract: This paper models inter-jurisdiction competition for foreign direct investment and optimal government policy intervention to protect the national interest. The inter-jurisdiction competition for a multinational has the potential of favouring the multinational and of becoming detrimental for the host country. The central government wants to limit such competition but it cannot tax-discriminate between different types of multinationals. We find that the central government would use tax policy to create asymmetries even when the underlying structure is symmetrical. This offers a novel explanation for the creation of 'Special Economic Zones' in many countries, which are well known to be aimed at the attraction of foreign direct investment.

Keywords: Bargaining; Subsidy; Regional; Competition; Foreign; direct; investment; (FDI) (search for similar items in EconPapers)
Date: 2007
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Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:regeco:v:37:y:2007:i:6:p:688-702

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