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Optimal National Policies towards Multinationals when Local Regions Can Choose between Firm-Specific and Non-Firm-Specific Policies

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This paper looks at a country's optimal central-government optimal policy in a setting where its two identical local jurisdictions compete to attract footloose multinationals to their sites, and where the considered multinationals strictly prefer this country to the rest of the world. For the sake of realism the model allows the local jurisdictions to choose between firm-specific and non-firm-specific policies. We show that the implementation of the jurisdictional firm-specific policy is weakly welfare dominant. Hence the frequent calls for the central government to ban the former type of policies go against the advice of this paper.
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Keywords: BARGAINING; CONCURRENT TAXATION; FOOTLOOSE MULTINATIONAL; OPTIMAL POLICY; TAX COMPETITION

Document Type: Research Article

Publication date: 01 September 2017

This article was made available online on 11 May 2017 as a Fast Track article with title: "Optimal National Policies towards Multinationals when Local Regions Can Choose between Firm-Specific and Non-Firm-Specific Policies".

More about this publication?
  • As one of the world's oldest professional journals in public finance, founded in 1884, FinanzArchiv (FA) publishes original work from all fields of public economics which are of interest to an international readership, e.g. taxation, public debt, public goods, public choice, federalism, market failure, social policy, and the welfare state. Special emphasis is on high-quality theoretical and empirical papers on current policy issues.

    FA is a peer-reviewed journal commited to a prompt turnaround of submissions.

    FA is listed in the Social Science Citation Index (SSCI), in Current Contents/Social and Behavioral Sciences, in Econ Lit, in the Journal of Economic Literature, in IDEAS and RePEc and in the International Bibliography of the Social Sciences.

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