Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/95303
Authors: 
Amerighi, Oscar
De Feo, Giuseppe
Year of Publication: 
2012
Series/Report no.: 
Quaderni di Dipartimento 161
Abstract: 
In this paper we investigate tax/subsidy competition for FDI between countries of different size when a domestic firm is the incumbent in the largest market. We investigate how the nature (public or private) of the incumbent firm affects policy competition between the two governments seeking to attract FDI. We show that the country hosting the incumbent always benefits from FDI if the domestic firm is a public welfare-maximizing firm, while its welfare may decrease when it is a private firm, as already shown by Bjorvatn and Eckel (2006). We also show that, contrary to the case of a private domestic incumbent, a public firm acts as a disciplinary device for the foreign multinational that will always choose the efficient welfare-maximizer location. Finally, an efficiency-enhancing role of policy competition may only arise when the domestic incumbent is a private firm, while tax competition is always wasteful when the incumbent is a public firm.
Subjects: 
Foreign Direct Investment
Tax/subsidy competition
Public firm
International mixed oligopoly
JEL: 
F12
F23
H25
H73
L13
L33
Document Type: 
Working Paper

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