Privatization and policy competition for FDI

In this paper, we provide an explanation of why privatization may attract foreign investors interested in entering a regional market. Privatization turns the formerly-public firm into a less aggressive competitor since profit- maximizing output is lower than the welfare-maximizing one. The drawback is that social welfare generally decreases. We also investigate tax/subsidy competition for FDI before and after privatization. We show that policy competition is irrelevant in the presence of a public firm serving just its domestic market. By contrast, following privatization, it endows the big country with an instrument which can be used either to reduce the negative impact on welfare of an FDI-attracting privatization or to protect the domestic industry from foreign competitors

Transfer Pricing and Enforcement Policy in Oligopolistic Markets

We set up a symmetric two-country model with two multinationals competing on the quantities and possibly manipulating their transfer prices. Governments choose both the corporate profit tax rate and the level of enforcement of the "arm's length" principle. We show that stronger enforcement increases equilibrium tax rates. We also and that a larger international ownership of multinationals leads to a "race to the top" in both policies between the two countries, while trade liberalization initially implies a "race to the bottom". But as trade becomes free enough, a further decrease in trade costs raises equilibrium tax rates and enforcement policies

Tax Competition for Foreign Direct Investments and the Nature of the Incumbent Firm

In this paper we investigate tax/subsidy competition for FDI between countries of different size when a domestic firm is the incumbent in the largest market. We investigate how the nature (public or private) of the incumbent firm affects policy competition between the two governments seeking to attract FDI. We show that the country hosting the incumbent always benefits from FDI if the domestic firm is a public welfare-maximizing firm, while its welfare may decrease when it is a private firm, as already shown by Bjorvatn and Eckel (2006). We also show that, contrary to the case of a private domestic incumbent, a public firm acts as a disciplinary device for the foreign multinational that will always choose the efficient welfare-maximizer location. Finally, an efficiency-enhancing role of policy competition may only arise when the domestic incumbent is a private firm, while tax competition is always wasteful when the incumbent is a public firm.Foreign Direct Investment; Tax/subsidy competition; Public firm; International mixed oligopoly

Is competition for FDI bad for regional welfare?

We investigate the impact on regional welfare of policy competition for FDI when a multinational firm can strategically react to differences in statutory corporate tax rates and shift taxable profits to lower-tax jurisdictions. We show that competing governments may have an incentive to tax discriminate between domestic and multinational firms even in the presence of profit shifting opportunities for the latter. In particular, tax discrimination leads to higher welfare for the region as a whole than lump-sum subsidy competition when the difference in statutory corporate tax rates and/or their average is high enough. We also find that policy competition increases regional welfare by changing the firm's investment decision when profit shifting motivations might induce the firm to locate in the least profitable country

Competition for FDI in the presence of a public firm and the effects of privatization

In this paper we investigate tax/subsidy competition for FDI between countries of different size when a welfare-maximizing and relatively inefficient public firm is the incumbent in the largest market. First, we analyze how the presence of a public firm affects the investment decision of a multinational operating in the same sector as the former and willing to serve both markets. When the public firm stops exporting to the small country due to the investment of the multinational in the region (or does not export altogether), policy competition between the two countries is irrelevant to the foreign firm's choice. But if the country receiving FDI has to pay a subsidy, only the multinational will be better off provided that it would have invested there anyway absent policy competition. By contrast, when the public firm exports to the small country, policy competition increases the attractiveness of the big country. Second, we show that privatizing the public firm makes the big country a relatively more attractive location for the investment. However, when the privatized firm stays in the market, welfare always decreases. After privatization, policy competition decreases the attractiveness of the big country, which may be willing to tax the multinational in order to discourage FDI from taking place there, and gives the small country the opportunity of benefiting from the investment

Privatization and policy competition for FDI

In this paper, we provide an explanation of why privatization may attract foreign investors interested in entering a regional market. Privatization turns the formerly-public firm into a less aggressive competitor since profit- maximizing output is lower than the welfare-maximizing one. The drawback is that social welfare generally decreases. We also investigate tax/subsidy competition for FDI before and after privatization. We show that policy competition is irrelevant in the presence of a public firm serving just its domestic market. By contrast, following privatization, it endows the big country with an instrument which can be used either to reduce the negative impact on welfare of an FDI-attracting privatization or to protect the domestic industry from foreign competitors.foreign direct investment, tax competition, public firm, privatization.

Exports Versus Horizontal Foreign Direct Investment with Profit Shifting

We study a firm which serves two unequally-sized markets and must choose where to locate its first production plant, and whether to open a second plant to serve the other market through local sales rather than exports. An exporter pays taxes only to the country where it locates its single production plant. A double- plant multinational pays taxes in both countries, but may shift taxable profits across countries, at a cost. We show that the usual proximity-concentration trade- off between fixed and trade costs is modified, depending on both the average tax of, and the tax difference between, the two countries. Moreover, in contrast to a standard result of the FDI literature, we find that increased market size asymmetry may make it more likely that the firm engages in horizontal FDI. From a global welfare viewpoint, it is always desirable to control the firm's profit shifting when the multinational structure is taken as given. However, the fact that the firm may react by changing its production structure may be a reason not to control profit shifting activities

Tax competition for foreign direct investments and the nature of the incumbent firm

We investigate tax/subsidy competition for FDI between countries of different size when a domestic firm is the incumbent in the largest market and we study how the nature (public or private) of the incumbent firm affects policy competition. We show that, differently from the case of a private firm, the country hosting the incumbent always benefits from FDI if the domestic firm is a public welfare-maximizing firm. We also show that the public firm acts as a disciplinary device for the foreign multinational that will always choose the efficient welfare-maximizing location. An efficiency-enhancing role of policy competition may then arise just when the domestic incumbent is a private firm, while tax competition is always wasteful in the presence of a public firm

On the FDI: attracting property of privatization

In the present paper we provide an explanation of why privatization may attract foreign investors willing to enter a regional market. Privatization turns the formerly-public rm into a less aggressive competitor since pro t-maximizing output is lower than the welfare-maximizing one. The drawback is that social welfare generally decreases. We also investigate tax/subsidy competition for FDI and put forward its potentially positive role. On the one hand, it may reduce the negative impact on welfare of an FDIattracting privatization. On the other hand, it may prevent a welfare-reducing investment by the foreign rm. This shows that privatization and scal policies may be either alternative or complementary instruments depending on the government's objective (i.e., country's attractiveness for foreign investors and domestic welfare)

A technology evaluation method for assessing the potential contribution of energy technologies to decarbonisation of the Italian production system

A methodology focused on technology evaluation is proposed to give a footprint of the development potential of energy technologies in Italy. The approach focuses on the impact on climate, the potential in terms of R&D, the competitiveness of Italian companies and their diffusion on the territory. A reference Catalogue was realised in the framework  of the ‘Technical Board on Decarbonisation of the Economy’, established by the Italian Presidency of the Council of Ministers. 36 datasheets, containing quantitative and qualitative information on Technology Readiness Level (TRL), efficiency, environmental and economic impacts and policy aspects were filled by 70 experts for each technology. Some data were extracted from the Catalogue - TRL, CO2 emissions, developers, and centres of excellence - and further analysed with other information relating to the Italian production and innovation system collected from the National Enterprise Registry (ASIA). Companies and research centres  are involved in development of technologies based on Renewable Energy Sources (RES) and Energy Storage (ES) with different levels of TRL and high potential for mitigating effects on climate. However, their distribution shows a rather inhomogeneous presence at territorial level. This evaluation provided useful elements to elaborate policy measures to support the diffusion of energy technologies