The Supply of Foreign Direct Investment Incentives: Subsidy Competition in an Oligopolistic Framework

Tomas Havranek

MPRA Paper from University Library of Munich, Germany

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: Investment incentives; Subsidy competition; Productivity spillovers; Oligopoly; Foreign direct investment; Multinational corporations (search for similar items in EconPapers)
JEL-codes: F21 F23 H25 (search for similar items in EconPapers)
Date: 2008-09-26
New Economics Papers: this item is included in nep-pbe
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Related works:
Journal Article: The supply of foreign direct investment incentives: subsidy competition in an oligopolistic framework (2009)
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:10770

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