Ferrett, Ben, Hoefele, Andreas, Wooton, Ian, (2016), “Does tax competition make mobile firms more footloose?”, Centre for Economic Policy Research, June
Existing analyses of fiscal competition for foreign direct investment (FDI) often assume a one-shot interaction between governments and the firm within a static environment where the firm makes a permanent location choice. We examine a two-period regional model where economic geography evolves, giving the firm an incentive to relocate between periods. Government competition for FDI leads the firm to make efficient location choices, with relocation “more likely” in the presence of international tax competition, because the winning country’s bid absorbs some of the firm’s relocation costs. With more time periods, tax competition induces firm relocation sooner than in its absence.
Relevant Posts
- John Vella, , Elly Van de Velde, Raymond Luja, (2016), “International Taxation and Tax Rulings: Policy Issues at Challenging Times” , PE 578.987, IP/A/TAXE/2016-08 May 2016
- Meldgaard, Henrik, Bundgaard, Jakob, Floristean, Alexandru, Dyppel Weber, Katja, (2016), “Study on structures of aggressive tax planning and indicators”, European Commission, Working Paper N. 61 – 2015.