A simple model of corporate bailouts in a globalized economy

Nelly Exbrayat, Thierry Madiès () and Stephane Riou ()
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Thierry Madiès: University of Fribourg, Faculté des sciences économiques et sociales, boulevard de Perolles, 90, 1700 Fribourg (Switzerland)

No 1913, Working Papers from Groupe d'Analyse et de Théorie Economique Lyon St-Étienne (GATE Lyon St-Étienne), Université de Lyon

Abstract: This paper explores how globalization influences the decision of governments to rescue inefficient domestic firms when bailouts affect firms'markups. We develop a model of international trade where immobile domestic enterprises (DOEs) compete with foreign enterprises (FOEs) in an oligopolistic market. The decision to bail out DOEs leads to lower corporate tax revenues if FOEs are immobile whereas tax revenues might increase if FOEs are mobile. Interestingly, the mobility of FOEs makes governments more prone to rescue inefficient domestic firms because tax competition reduces the opportunity cost of a bailout policy in terms of public good provision.

Keywords: bailout of manufacturing firms; tax competition; trade costs; firm mobility (search for similar items in EconPapers)
JEL-codes: D21 F12 F15 H25 (search for similar items in EconPapers)
Date: 2019
New Economics Papers: this item is included in nep-int
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ftp://ftp.gate.cnrs.fr/RePEc/2019/1913.pdf (application/pdf)

Related works:
Journal Article: A Simple Model of Corporate Bailouts in a Globalized Economy (2020)
Working Paper: A Simple Model of Corporate Bailouts in a Globalized Economy (2020)
Working Paper: A simple model of corporate bailouts in a globalized economy (2019)
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Persistent link: https://EconPapers.repec.org/RePEc:gat:wpaper:1913

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