This paper models inter-jurisdiction competition for foreign direct investment and optimal government policy intervention to protect the national interest. The inter-jurisdiction competition for a multinational has the potential of favouring the multinational and of becoming detrimental for the host country. The central government wants to limit such competition but it cannot tax-discriminate between different types of multinationals. We find that the central government would use tax policy to create asymmetries even when the underlying structure is symmetrical. This offers a novel explanation for the creation of 'Special Economic Zones' in many countries, which are well known to be aimed at the attraction of foreign direct investment.
|Number of pages||15|
|Journal||Regional Science and Urban Economics|
|Publication status||Published - Nov 1 2007|
- Foreign direct investment (FDI)
ASJC Scopus subject areas
- Economics and Econometrics
- Urban Studies