Inter-jurisdiction subsidy competition for a new production plant: What is the central government optimal policy?

O. J. Parcero

Research output: Contribution to journalArticlepeer-review

4 Citations (Scopus)

Abstract

This paper models inter-jurisdiction competition for foreign direct investment and optimal government policy intervention to protect the national interest. The inter-jurisdiction competition for a multinational has the potential of favouring the multinational and of becoming detrimental for the host country. The central government wants to limit such competition but it cannot tax-discriminate between different types of multinationals. We find that the central government would use tax policy to create asymmetries even when the underlying structure is symmetrical. This offers a novel explanation for the creation of 'Special Economic Zones' in many countries, which are well known to be aimed at the attraction of foreign direct investment.

Original languageEnglish
Pages (from-to)688-702
Number of pages15
JournalRegional Science and Urban Economics
Volume37
Issue number6
DOIs
Publication statusPublished - Nov 2007
Externally publishedYes

Keywords

  • Bargaining
  • Competition
  • Foreign direct investment (FDI)
  • Regional
  • Subsidy

ASJC Scopus subject areas

  • Economics and Econometrics
  • Urban Studies

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