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Unionisation triggers tax incentives to attract foreign direct investment

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  • Haufler, Andreas
  • Mittermaier, Ferdinand

Abstract

This paper analyses tax competition between a unionised and a non-unionised country for the location of an outside firm. We show that unionisation offers an extra incentive for the government to attract a foreign competitor to a concentrated domestic market, in order to affect the behaviour of the domestic union. This results in the unionised country's government offering a tax discount (or a subsidy premium) to the outside firm in excess of what is needed to compensate the investor for the higher union wage. In equilibrium, therefore, the unionised country can attract the outside firm even if it has other location disadvantages, such as a smaller home market.

Suggested Citation

  • Haufler, Andreas & Mittermaier, Ferdinand, 2008. "Unionisation triggers tax incentives to attract foreign direct investment," Discussion Papers in Economics 3752, University of Munich, Department of Economics.
    • Handle: RePEc:lmu:muenec:3752
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    References listed on IDEAS

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    More about this item

    Keywords

    tax competition; trade unions; foreign direct investment;
    All these keywords.

    JEL classification:

    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • H73 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Interjurisdictional Differentials and Their Effects
    • J58 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - Public Policy

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