Knowledge Spillovers and The Optimal Taxation of Multinational Firms

Alexander Monge-Naranjo

No 593, 2012 Meeting Papers from Society for Economic Dynamics

Abstract: This paper examines a key policy question for many developing countries: Should they allow and even subsidize the entry and operation of multinational firms? I consider a model in which spillovers drive the formation of productive knowledge, the typical rationale for attracting multinational firms. I depart from most work on the gains of openness and instead of using simple counterfactual policies (i.e. compare complete openness or complete closedness with each other or with actual policies) I characterize the gains attainable under a Ramsey program, when taxes are set to maximize the welfare of the recipient country subject to the equilibrium behavior of national and foreign agents. I find that contrary to laissez-faire, openness under optimal taxation always leads developing countries to catch up with developed countries and improves their welfare. However, in stark contrast with some observed practice, I find that a developing country should only subsidize the entry of foreign firms if the domestic accumulation of know-how is also subsidized.

Date: 2012
New Economics Papers: this item is included in nep-dge
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://red-files-public.s3.amazonaws.com/meetpapers/2012/paper_593.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:red:sed012:593

Access Statistics for this paper

More papers in 2012 Meeting Papers from Society for Economic Dynamics Society for Economic Dynamics Marina Azzimonti Department of Economics Stonybrook University 10 Nicolls Road Stonybrook NY 11790 USA. Contact information at EDIRC.
Bibliographic data for series maintained by Christian Zimmermann ().