The supply of foreign direct investment incentives: subsidy competition in an oligopolistic framework

Tomas Havranek

Prague Economic Papers, 2009, vol. 2009, issue 2, 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 incentives. 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: foreign direct investment; investment incentives; subsidy competition; productivity spillovers; oligopoly; multinational corporations (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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Citations: View citations in EconPapers (7)

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Working Paper: The Supply of Foreign Direct Investment Incentives: Subsidy Competition in an Oligopolistic Framework (2008)
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DOI: 10.18267/j.pep.346

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