دانلود مقاله ISI انگلیسی شماره 9659
عنوان فارسی مقاله

ریسک کشور، اندازه کشور و رقابت مالیاتی برای سرمایه گذاری مستقیم خارجی

کد مقاله سال انتشار مقاله انگلیسی ترجمه فارسی تعداد کلمات
9659 2012 10 صفحه PDF سفارش دهید 7300 کلمه
خرید مقاله
پس از پرداخت، فوراً می توانید مقاله را دانلود فرمایید.
عنوان انگلیسی
Country risk, country size, and tax competition for foreign direct investment
منبع

Publisher : Elsevier - Science Direct (الزویر - ساینس دایرکت)

Journal : International Review of Economics & Finance , Volume 21, Issue 1, January 2012, Pages 292–301

کلمات کلیدی
ریسک کشور - رقابت مالیاتی - سرمایه گذاری مستقیم خارجی - اندازه کشور
پیش نمایش مقاله
پیش نمایش مقاله ریسک کشور، اندازه کشور و رقابت مالیاتی برای سرمایه گذاری مستقیم خارجی

چکیده انگلیسی

This paper analyzes tax competition for foreign direct investment with country risk using a two-country model with different market sizes. We show that the trade-off between country size as a locational advantage and country risk as a locational disadvantage affects the location choice of a foreign firm. Given the circumstance in which the foreign firm faces the same probabilities of country risk in both potential host countries when deciding investment location, our analysis shows that if the market size of the high-risk country is sufficiently large relative to the low-risk country, the foreign firm benefits from choosing the high-risk larger country even if the host country's government imposes a lump-sum tax. Given the situation in which the foreign firm faces different probabilities of country risk in each host country, our results show that the important matter for the foreign firm is whether the host country is high-cost or low-cost, rather than whether the host country is high-risk.

مقدمه انگلیسی

When a firm chooses to become a multinational enterprise and establish a foreign production plant, it seldom builds a factory to service only the domestic market of the country in which it is investing. Instead, it establishes a base from which it supplies consumers in surrounding countries. This foreign direct investment (FDI) may have been triggered by efforts at increasing the level of integration between countries in the region, as have recently been taken by regional economic groupings such as the European Union (EU), NAFTA and the ASEAN countries. Thus, for example, the EU's Single Market Initiative has reduced the remaining barriers to trade between member states and has raised the level of competition within the region (see Smith and Venables, 1988). Even if external trade barriers are unchanged, these policies of reducing intra-regional trade costs put suppliers from outside the region at a disadvantage (for example, transforming the EU into “Fortress Europe”). The foreign firms may respond by setting up production within the region in order to avoid the external trade barriers and avail themselves of access to the single market. Consequently the tariff-jumping incentive to build a branch plant is increased when trade barriers within the region are lowered (Norman and Motta, 1993). In this paper, we investigate what influences a foreign-owned firm in its choice of country in which to invest, once it has opted for foreign direct investment rather than exporting from its home base. In particular, we focus on foreign direct investment in a region in which the population is asymmetrically distributed between countries and there are some remaining barriers to intra-regional trade (though these are lower than on trade with countries outside the region). The existence of trade costs creates a “home market bias” familiar from the new trade theory (e.g. Krugman, 1980), which interacts with tax policy as governments attempt to attract the foreign firm by offering investment incentives. Recent empirical work has shown that both market size and the effective tax rate on capital are important factors in influencing multinational firms' choices of countries in which to invest (Devereux and Freeman, 1995, Devereux and Griffith, 1998 and Grubert and Mutti, 1996). These empirically relevant determinants of FDI lead us to draw on two fields which have traditionally been largely separated in the literature—the new trade theory on the one hand and the public finance related literature on international tax competition on the other. Recent work in the trade literature has focused on imperfectly competitive markets and has introduced transport costs as a model element that plays an important role either as an agglomerating force (Krugman, 1991), or for the equilibrium market structure and the production decision of multinational firms (Horstmann and Markusen, 1992). In the last few years, several papers have also incorporated tax competition in a framework of imperfectly competitive markets. Thus Ludema and Wooton (1998)introduce tax competition for mobile workers to the Krugman model. Markusen et al. (1995)study a model where governments compete through environmental taxes when production activity causes local pollution and a multinational firm may operate plants in one, both, or none of the competing countries. Environmental tax policy is also studied in Rauscher (1995), who compares noncooperative and cooperative outcomes when countries compete for the location of a foreign-owned monopolist. Other papers combine oligopolistic behaviour and international mobility of firms when governments compete either through local public inputs (Walz and Wellisch, 1996) or profit taxes (Janeba, 1998). Finally, Lahiri and Ono (1996)consider a small host country that optimally deploys profit taxes and local content rules when a variable number of identical foreign and domestic firms compete in its domestic market. On the other hand, most contributions on tax competition in the public finance tradition have adopted a framework of perfect competition, but have introduced various sources of asymmetries between countries and have studied the interaction between different tax instruments. One branch in this literature which is directly relevant for the present work focuses on asymmetric tax competition between countries of different size (Bucovetsky, 1991, Wilson, 1991, Kanbur and Keen, 1993 and Trandel, 1994). A general result from this literature is that the small country chooses the lower tax rate and achieves the higher per-capita utility level in the Nash equilibrium, relative to the large country. Another strand in this literature considers the optimal mix of source- and residence-based capital taxation when there is cross-hauling of foreign direct investment and rents from fixed factors cannot be (fully) taxed by a separate instrument (Mintz and Tulkens, 1996 and Huizinga and Nielsen, 1997). A still different set of papers with links to the present analysis considers subsidy competition for interregionally mobile firms (Black and Hoyt, 1989 and Haaparanta, 1996). However, none of these papers incorporates trade costs between the competing jurisdictions. Hence differences in market size—if they exist—do not affect the location decision of the multijurisdictional firm. The present paper combines the trade cost element from the new trade literature with the existence of differences in country size and multiple tax instruments. As we will see, this setting produces results that differ critically from those established in the previous literature. Our analysis considers two different settings. Initially, we assume that there are exogenously determined trade costs which are incurred when goods are shipped between countries. In this case, the only instrument available to each government is the ability to tax or subsidise the operations of a firm that invests within its national frontiers. We find that the existence of trade costs reverses the answer to the question whether the large or the small country “wins” the competition for internationally mobile capital. Later, we shall replace the trade costs by a second policy instrument which can either be interpreted as a tariff or—closer to the European setting—as a consumption tax. We show that in the presence of this second instrument the large country will not only be able to attract the firm, it will also quite likely be able to impose a positive profit tax in the locational equilibrium. The remainder of this paper is organised as follows: Section 2describes the basic model, which applies to both policy settings discussed thereafter. Section 3analyses profit tax competition between the two governments when trade costs are exogenous and represent a source of pure waste. Section 4then turns to the case where trade costs take the form of an additional policy instrument (tariff or consumption tax) and provide a source of tax revenues. Section 5compares our results with those established in previous contributions on interregional capital tax competition and Section 6concludes.

نتیجه گیری انگلیسی

When a firm chooses to become a multinational enterprise and establish a foreign production plant, it seldom builds a factory to service only the domestic market of the country in which it is investing. Instead, it establishes a base from which it supplies consumers in surrounding countries. This foreign direct investment (FDI) may have been triggered by efforts at increasing the level of integration between countries in the region, as have recently been taken by regional economic groupings such as the European Union (EU), NAFTA and the ASEAN countries. Thus, for example, the EU's Single Market Initiative has reduced the remaining barriers to trade between member states and has raised the level of competition within the region (see Smith and Venables, 1988). Even if external trade barriers are unchanged, these policies of reducing intra-regional trade costs put suppliers from outside the region at a disadvantage (for example, transforming the EU into “Fortress Europe”). The foreign firms may respond by setting up production within the region in order to avoid the external trade barriers and avail themselves of access to the single market. Consequently the tariff-jumping incentive to build a branch plant is increased when trade barriers within the region are lowered (Norman and Motta, 1993). In this paper, we investigate what influences a foreign-owned firm in its choice of country in which to invest, once it has opted for foreign direct investment rather than exporting from its home base. In particular, we focus on foreign direct investment in a region in which the population is asymmetrically distributed between countries and there are some remaining barriers to intra-regional trade (though these are lower than on trade with countries outside the region). The existence of trade costs creates a “home market bias” familiar from the new trade theory (e.g. Krugman, 1980), which interacts with tax policy as governments attempt to attract the foreign firm by offering investment incentives. Recent empirical work has shown that both market size and the effective tax rate on capital are important factors in influencing multinational firms' choices of countries in which to invest (Devereux and Freeman, 1995, Devereux and Griffith, 1998 and Grubert and Mutti, 1996). These empirically relevant determinants of FDI lead us to draw on two fields which have traditionally been largely separated in the literature—the new trade theory on the one hand and the public finance related literature on international tax competition on the other. Recent work in the trade literature has focused on imperfectly competitive markets and has introduced transport costs as a model element that plays an important role either as an agglomerating force (Krugman, 1991), or for the equilibrium market structure and the production decision of multinational firms (Horstmann and Markusen, 1992). In the last few years, several papers have also incorporated tax competition in a framework of imperfectly competitive markets. Thus Ludema and Wooton (1998)introduce tax competition for mobile workers to the Krugman model. Markusen et al. (1995)study a model where governments compete through environmental taxes when production activity causes local pollution and a multinational firm may operate plants in one, both, or none of the competing countries. Environmental tax policy is also studied in Rauscher (1995), who compares noncooperative and cooperative outcomes when countries compete for the location of a foreign-owned monopolist. Other papers combine oligopolistic behaviour and international mobility of firms when governments compete either through local public inputs (Walz and Wellisch, 1996) or profit taxes (Janeba, 1998). Finally, Lahiri and Ono (1996)consider a small host country that optimally deploys profit taxes and local content rules when a variable number of identical foreign and domestic firms compete in its domestic market. On the other hand, most contributions on tax competition in the public finance tradition have adopted a framework of perfect competition, but have introduced various sources of asymmetries between countries and have studied the interaction between different tax instruments. One branch in this literature which is directly relevant for the present work focuses on asymmetric tax competition between countries of different size (Bucovetsky, 1991, Wilson, 1991, Kanbur and Keen, 1993 and Trandel, 1994). A general result from this literature is that the small country chooses the lower tax rate and achieves the higher per-capita utility level in the Nash equilibrium, relative to the large country. Another strand in this literature considers the optimal mix of source- and residence-based capital taxation when there is cross-hauling of foreign direct investment and rents from fixed factors cannot be (fully) taxed by a separate instrument (Mintz and Tulkens, 1996 and Huizinga and Nielsen, 1997). A still different set of papers with links to the present analysis considers subsidy competition for interregionally mobile firms (Black and Hoyt, 1989 and Haaparanta, 1996). However, none of these papers incorporates trade costs between the competing jurisdictions. Hence differences in market size—if they exist—do not affect the location decision of the multijurisdictional firm. The present paper combines the trade cost element from the new trade literature with the existence of differences in country size and multiple tax instruments. As we will see, this setting produces results that differ critically from those established in the previous literature. Our analysis considers two different settings. Initially, we assume that there are exogenously determined trade costs which are incurred when goods are shipped between countries. In this case, the only instrument available to each government is the ability to tax or subsidise the operations of a firm that invests within its national frontiers. We find that the existence of trade costs reverses the answer to the question whether the large or the small country “wins” the competition for internationally mobile capital. Later, we shall replace the trade costs by a second policy instrument which can either be interpreted as a tariff or—closer to the European setting—as a consumption tax. We show that in the presence of this second instrument the large country will not only be able to attract the firm, it will also quite likely be able to impose a positive profit tax in the locational equilibrium. The remainder of this paper is organised as follows: Section 2describes the basic model, which applies to both policy settings discussed thereafter. Section 3analyses profit tax competition between the two governments when trade costs are exogenous and represent a source of pure waste. Section 4then turns to the case where trade costs take the form of an additional policy instrument (tariff or consumption tax) and provide a source of tax revenues. Section 5compares our results with those established in previous contributions on interregional capital tax competition and Section 6concludes.

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