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Double-edged incentive competition for foreign direct investment

Jie Ma ()

International Tax and Public Finance, 2017, vol. 24, issue 2, 282-312

Abstract: Abstract This paper studies the impact of special interest lobbying on competition for foreign direct investment (FDI) in a common agency framework. We argue that special interest lobbying may provide an extra political incentive for governments to attract FDI. We show that compared with the benchmark case where governments maximize national welfare, now (1) an economically disadvantageous country has a chance to win FDI competition; (2) the equilibrium subsidy for attracting FDI is higher than in the benchmark case; (3) allocative efficiency cannot be always achieved.

Keywords: Foreign direct investment (FDI); Incentive competition; Special interest lobbying; Common agency (search for similar items in EconPapers)
JEL-codes: D72 F23 H25 H71 H73 H87 (search for similar items in EconPapers)
Date: 2017
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Handle: RePEc:kap:itaxpf:v:24:y:2017:i:2:d:10.1007_s10797-016-9409-0