Unionization triggers tax incentives to attract FDI
نویسندگان
چکیده
This paper examines tax competition between a unionized and a nonunionized country for the location of an outside firm. We show that unionization offers an extra incentive for the government to attract a foreign competitor to a concentrated domestic market, in order to limit the power 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, therefore, the unionized country will attract the foreign capital even if it has other location disadvantages, such as a smaller home market.
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