Is Competition for FDI Bad for Regional Welfare?

Amerighi, Oscar ; De Feo, Giuseppe (2009) Is Competition for FDI Bad for Regional Welfare? Bologna: Dipartimento di Scienze economiche DSE, p. 31. DOI 10.6092/unibo/amsacta/4564. In: Quaderni - Working Paper DSE (680). ISSN 2282-6483.
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Abstract

We investigate the impact on regional welfare of policy competition for FDI when a multinational firm can strategically react to differences in statutory corporate tax rates and shift taxable profits to lower-tax jurisdictions. We show that competing governments may have an incentive to tax discriminate between domestic and multinational firms even in the presence of profit shifting opportunities for the latter. In particular, tax competition leads to higher welfare for the region as a whole than lump-sum subsidy competition when the difference in statutory corporate tax rates and/or their average is high enough. We also find that policy competition increases regional welfare by changing the firm's investment decision when profit shifting motivations might induce the firm to locate in the least profitable country.

Abstract
Document type
Monograph (Working Paper)
Creators
CreatorsAffiliationORCID
Amerighi, Oscar
De Feo, Giuseppe
Keywords
Policy competition for FDI; Profit shifting; Tax discrimination
Subjects
ISSN
2282-6483
DOI
Deposit date
05 Feb 2016 11:28
Last modified
05 Feb 2016 11:28
URI

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