Federalism, weak institutions and the competition for foreign direct investment

Sebastian Kessing, Kai Konrad and Christos Kotsogiannis

Munich Reprints in Economics from University of Munich, Department of Economics

Abstract: This paper shows that vertical fiscal inefficiencies impede federally organized countries in successfully attracting foreign direct investment. Such countries, particularly if characterized by weak institutions, are disadvantaged in the process of bidding for firms and in their ability to commit to a low overall tax burden. The interaction of these problems deteriorates their competitive position vis-à-vis unitary states in the competition for foreign direct investment. These theoretical considerations are in line with recent empirical evidence that suggests that the number of government layers of host countries has significant and sizeable negative effects on the amount of foreign direct investment inflows. © 2008 Springer Science+Business Media, LLC.

JEL-codes: F34 F42 H11 H71 H77 (search for similar items in EconPapers)
Date: 2009
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Citations: View citations in EconPapers (16)

Published in International Tax and Public Finance 1 16(2009): pp. 105-123

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Journal Article: Federalism, weak institutions and the competition for foreign direct investment (2009)
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