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Is competition for FDI bad for regional welfare?

Amerighi, O. and De Feo, G. (2008) Is competition for FDI bad for regional welfare? In: 10th Annual Conference of the European Trade Study Group (ETSG2008), 2008-09-01, Warsaw, Poland. (Unpublished)

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We investigate the impact on regional welfare of policy competition for FDI when a multinational firm can strategically react to differences in statutory corporate tax rates and shift taxable profits to lower-tax jurisdictions. We show that competing governments may have an incentive to tax discriminate between domestic and multinational firms even in the presence of profit shifting opportunities for the latter. In particular, tax discrimination leads to higher welfare for the region as a whole than lump-sum subsidy competition when the difference in statutory corporate tax rates and/or their average is high enough. We also find that policy competition increases regional welfare by changing the firm's investment decision when profit shifting motivations might induce the firm to locate in the least profitable country.

Item type: Conference or Workshop Item (Paper)
ID code: 7781
Keywords: policy competition, FDI, profit shifting, tax discrimination, Commerce, Economic Theory
Subjects: Social Sciences > Commerce
Social Sciences > Economic Theory
Department: Strathclyde Business School > Economics
Depositing user: Strathprints Administrator
Date Deposited: 26 Mar 2009 12:52
Last modified: 23 Jul 2015 13:45

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