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Tax competition, location and horizontal foreign direct investment
Behrens, Kristian; Picard, Pierre M.


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Keywords :
capital tax competition; international trade; multi-plant location problem; foreign direct investment; imperfect competition
Abstract :
[en] We develop a model of capital tax competition in which imperfectly competitive firms choose both the number of plants they operate and their location. When compared to models with single-plant firms, the presence of multinationals reverses some standard results. First, instead of being subsidized, capital may actually be taxed in equilibrium, which shows that the presence of taxable ‘multinational rents’ relaxes tax competition. Second, even when firms are subsidized, their subsidyinclusive profits may be decreasing in subsidies, due to fiercer price competition by more multinationals. Third, multinationals may give rise to multiple equilibria in the tax game, one of which can be a ‘subsidy trap’ characterized by many multinationals, high subsidy levels, and low welfare.
Disciplines :
International economics
Identifiers :
Author, co-author :
Behrens, Kristian;  Université du Québec, Montréal
Picard, Pierre M. ;  University of Luxembourg > Faculty of Law, Economics and Finance (FDEF) > Center for Research in Economic Analysis (CREA)
Language :
Title :
Tax competition, location and horizontal foreign direct investment
Publication date :
21 December 2005
Publisher :
MIT Press
Available on ORBilu :
since 27 November 2013


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