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 Contact information at EDIRC.
Bibliographic data for series maintained by Christian Zimmermann ().