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| Author: | Haufler, A. Mittermaier, F. |
| Title: | Unionization triggers tax incentives to attract foreign direct investment |
| Journal: | Economic Journal
2011 : JUN, VOL. 121:553 p. 793-818 |
| Index terms: | competition companies government foreign investment alliances |
| Language: | eng |
| Abstract: | This paper presents an analysis of tax competition between a unionized and a non-unionized country for the location of an outside firm. It is illustrated that unionization picks up the incentive for the government to attract a foreign investor, in order to influence the behavior of the domestic union. This results in the unionized country's government offering a tax discount (or a subsidy premium) to the outside firm in excess of what is needed to compensate the investor for the higher union wage. In equilibrium, thus, the unionized country attracts the foreign investment, even if it has no other location advantages. |
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