Publication detail

The Supply of Foreign Direct Investment Incentives: Subsidy Competition in an Oligopolistic Framework

Author(s): prof. PhDr. Tomáš Havránek Ph.D.,
Type: Articles in journals with impact factor
Year: 2009
Number: 2
Published in: Prague Economic Papers, 2009(2), 131--155
Publishing place:
Keywords: Investment incentives, Subsidy competition, Productivity spillovers, Oligopoly, Foreign direct investment, Multinational corporations
JEL codes: F12, F21, F23, H25, H71, H87
Suggested Citation:
Abstract: This paper examines the microeconomic motivation of governments to
provide tax incentives for foreign direct investment. Author applies the classical
models of oligopoly to subsidy competition, endogenousing investment incentives, but leaving tax rates exogenous. According to the conventional wisdom, subsidy competition leads to overprovision of incentives. This paper suggests that, in the oligopolistic framework, supranational coordination can either decrease or increase the supply of subsidies. Further, in the setting of subsidy regulation, the host country's corporate income tax rate has an ambiguous eect on the provision of incentives.


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