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Government policy towards multi-national corporations

Author

Listed:
  • David Wettstein

    (Ben-Gurion University of the Negev)

  • Israel Luski

    (Ben-Gurion University of the Negev)

  • Todd Kaplan

    (University of Exeter)

Abstract

We analyze an environment with asymmetric information where a country tries to attract a multi-national corporation. The country can use both taxes and grants to meet its objective of maximizing net revenues. We show that when the country has private information it can often convey it via its choice of a tax-grant pair. When the tax rates are unbounded the country is able to extract the full surplus. The existence of an upper bound can in some cases reduce the payoff to a stronger country.

Suggested Citation

  • David Wettstein & Israel Luski & Todd Kaplan, 2003. "Government policy towards multi-national corporations," Economics Bulletin, AccessEcon, vol. 6(3), pages 1-8.
    • Handle: RePEc:ebl:ecbull:eb-02f00002
    as

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    File URL: http://www.accessecon.com/pubs/EB/2003/Volume6/EB-02F00002A.pdf
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    References listed on IDEAS

    as
    1. Ian King & R. Preston McAfee & Linda Welling, 1993. "Industrial Blackmail: Dynamic Tax Competition and Public Investment," Canadian Journal of Economics, Canadian Economics Association, vol. 26(3), pages 590-608, August.
    2. B. Douglas Bernheim & Michael D. Whinston, 1986. "Menu Auctions, Resource Allocation, and Economic Influence," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 101(1), pages 1-31.
    3. Haaparanta, Pertti, 1996. "Competition for foreign direct investments," Journal of Public Economics, Elsevier, vol. 63(1), pages 141-153, December.
    4. Bond, Eric W & Samuelson, Larry, 1986. "Tax Holidays as Signals," American Economic Review, American Economic Association, vol. 76(4), pages 820-826, September.
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    Cited by:

    1. M. Rosenboim & I. Luski & T. Shavit, 2008. "Behavioral approaches to optimal FDI incentives," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 29(7), pages 601-607.
    2. Taiji Furusawa & Kazumi Hori & Ian Wooton, 2015. "A race beyond the bottom: the nature of bidding for a firm," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 22(3), pages 452-475, June.
    3. Renz, André, 2016. "Die Relevanz von Replikationen in der experimentellen Steuerforschung: Eine Replikationsstudie zu Wahrnehmungsverzerrungen bei Subventionen," arqus Discussion Papers in Quantitative Tax Research 202, arqus - Arbeitskreis Quantitative Steuerlehre.

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    More about this item

    Keywords

    Foreign Direct Investment;

    JEL classification:

    • F0 - International Economics - - General
    • F2 - International Economics - - International Factor Movements and International Business

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