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The Impact of Multinationals' Home-Returning Threats on the Fiscal Policies of Host Countries

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  • Chul-Woo Kwon
  • Uk Hwang

Abstract

Multinational firms use the threat of returning to their home country to gain leverage over host governments, often securing excessive subsidies or tax reductions. This study examines how such "home-returning threats" influence host governments' decisions to provide financial support, revealing that governments tend to offer unnecessary incentives to retain these firms. The research highlights that firms benefit more from continuing production abroad, using the threat as a negotiation tool to maximize profits, while host countries bear the cost of excessive subsidies.

Suggested Citation

  • Chul-Woo Kwon & Uk Hwang, 2024. "The Impact of Multinationals' Home-Returning Threats on the Fiscal Policies of Host Countries," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 180(4), pages 709-733.
    • Handle: RePEc:mhr:jinste:urn:doi:10.1628/jite-2024-0034
    DOI: 10.1628/jite-2024-0034
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    More about this item

    Keywords

    multinationals; home-returning threat; offshoring; reshoring; tax policies;
    All these keywords.

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F20 - International Economics - - International Factor Movements and International Business - - - General
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business

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