Fiscal Competition in Developing Countries : A Survey of the Theoretical and Empirical Literature

The last two decades have witnessed a sharp increase in foreign direct investment (FDI) flows and increased competition among developing countries to attract FDI, resulting in higher investment incentives offered by host governments and removal of restrictions on operations of foreign firms in their countries. Fiscal competition between governments can take the form of business tax rebates, productivity-enhancing public infrastructure or investment incentives such as tax holidays, accelerated depreciation allowances or loss carry-forward for income tax purposes. It can take place between governments of different countries or between local governments within the same country. This paper surveys the recent theoretical and empirical economic literature on decentralization which attempts to answer three questions. First, does theoretical literature on fiscal competition and "bidding races" contribute to a better understanding of such phenomenon in developing countries? Second, are FDI inflows in developing countries sensitive to fiscal incentives and is there empirical evidence of strategic behavior from the part of developing countries in order to attract FDI? Third, what evidence is there about fiscal competition among local governments in developing countries?

Bibliographic Details

Main Authors:	Madies, Thierry, Dethier, Jean-Jacques
Language:	English
Published:	2010-05-01
Subjects:	ADDED TAX, AGENCY PROBLEM, ASYMMETRIC INFORMATION, AUCTION, AUCTIONS, BAILOUT, BID, BIDS, BOND, BUDGET CONSTRAINT, BUDGET CONSTRAINTS, BUSINESS OPPORTUNITIES, BUSINESS TAX, BUSINESS TAXES, CAPITAL FLIGHT, CAPITAL FLOWS, CAPITAL FORMATION, CAPITAL IMPORTER, CENTRAL BANK, CENTRAL GOVERNMENT, CENTRAL GOVERNMENTS, CITIES, COASTAL PROVINCES, COMMITMENT DEVICE, COMMON MARKET, COMPETITIVE MARKETS, CORPORATE INCOME TAX, CORPORATE TAX, CORPORATE TAX RATE, CORPORATE TAX RATES, CORPORATE TAXES, COST OF CAPITAL, COUNTRY MARKET, COUNTRY RISK, CURRENT EXPENDITURES, DECENTRALIZATION, DEMOCRACY, DEVELOPING COUNTRIES, DEVELOPING COUNTRY, DEVELOPING ECONOMIES, DIFFERENTIALS, DIRECT PAYMENTS, DISTRICTS, DOMESTIC PRICES, DOUBLE TAXATION, ECONOMIC ANALYSIS, ECONOMIC DEVELOPMENT, ECONOMIC GROWTH, ECONOMIC INTEGRATION, EFFECTIVE TAX RATES, ENTERPRISE OPERATIONS, EQUALIZATION, EQUIPMENTS, EQUITY INVESTMENT, EXCESS SUPPLY, EXPENDITURE, EXPENDITURE NEEDS, EXPENDITURES ON INFRASTRUCTURE, EXPORTER, EXTERNALITIES, FEDERAL SUBSIDIES, FEDERAL TRANSFER, FINANCIAL CRISIS, FINANCIAL MARKETS, FINANCIAL STUDIES, FISCAL AUTONOMY, FISCAL DECENTRALIZATION, FISCAL FEDERALISM, FISCAL POLICY, FISCAL TRANSFERS, FIXED CAPITAL, FIXED INVESTMENT, FOREIGN DIRECT INVESTMENT, FOREIGN FIRMS, FOREIGN INVESTMENT, FOREIGN INVESTORS, FOREIGN MARKET, FOREIGN TAX CREDITS, FREE TRADE, FREE TRADE AGREEMENT, GLOBALIZATION, GOVERNMENT BORROWING, GOVERNMENT POLICIES, GOVERNMENT REVENUE, HARD BUDGET CONSTRAINTS, HARMONIZATION, HOME COUNTRY, HOST COUNTRIES, HOST COUNTRY, HOST GOVERNMENTS, HUMAN CAPITAL, IMPLICIT TAX, INCOME TAX, INDUSTRIAL COUNTRIES, INFORMATION ASYMMETRIES, INFRASTRUCTURE DEVELOPMENT, INFRASTRUCTURE INVESTMENT, INSURANCE, INSURANCE COMPANIES, INTANGIBLE, INTANGIBLE ASSETS, INTERNATIONAL BANK, INTERNATIONAL CAPITAL, INTERNATIONAL CAPITAL MOBILITY, INTERNATIONAL INVESTORS, INTERNATIONAL TRADE, INVESTING, INVESTMENT BANK, INVESTMENT CLIMATE, INVESTMENT DECISION, INVESTMENT DECISIONS, INVESTMENT PROJECTS, JURISDICTION, JURISDICTIONS, LEVEL OF GOVERNMENT, LOCAL AUTONOMY, LOCAL BUSINESS, LOCAL GOVERNMENT, LOCAL GOVERNMENTS, LOCAL PUBLIC GOOD, MARGINAL COST, MARKET CONDITION, MARKET SIZE, MAYOR, MUNICIPALITIES, MUNICIPALITY, NATURAL RESOURCE, NET CAPITAL, OPPORTUNISTIC BEHAVIOR, OPPORTUNITY COST, OUTPUT, PERSONAL INCOME, POLICY CHOICES, POLICY DECISIONS, POLITICAL ACCOUNTABILITY, POLITICAL STABILITY, PORTFOLIO, POSITIVE EXTERNALITIES, POTENTIAL INVESTORS, PRIVATE CAPITAL, PRIVATE LOANS, PRIVATE SECTOR, PROPERTY TAX, PROVINCE, PROVINCES, PROVINCIAL GOVERNMENT, PROVINCIAL GOVERNMENTS, PROVINCIAL LEVEL, PROVINCIAL TAX, PROVINCIAL TAXES, PROVISIONS, PUBLIC, PUBLIC CONSUMPTION, PUBLIC ECONOMICS, PUBLIC EXPENDITURE, PUBLIC EXPENDITURES, PUBLIC FINANCE, PUBLIC FUNDS, PUBLIC GOODS, PUBLIC INFORMATION, PUBLIC INFRASTRUCTURE, PUBLIC INVESTMENT, PUBLIC LOANS, PUBLIC POLICY, PUBLIC SECTOR, PUBLIC SPENDING, REGIONAL INTEGRATION, REGIONAL TRADE, RESOURCE ALLOCATION, RETURN, RETURNS, REVENUE SHARING, SMALL COUNTRIES, SOCIAL VALUE, SOFT BUDGET CONSTRAINT, SOFT BUDGET CONSTRAINTS, SUB-NATIONAL, SUB-NATIONAL GOVERNMENT, SUBNATIONAL, SUBNATIONAL GOVERNMENT, SUBNATIONAL GOVERNMENTS, TAX, TAX AUTONOMY, TAX BASE, TAX BASES, TAX BREAKS, TAX BURDEN, TAX CHANGES, TAX COMPETITION, TAX CONCESSIONS, TAX COORDINATION, TAX CREDIT, TAX CREDITS, TAX DIFFERENTIALS, TAX INCENTIVES, TAX PAYMENTS, TAX PLANNING, TAX POLICIES, TAX POLICY, TAX PREFERENCES, TAX PROVISION, TAX PURPOSES, TAX RATE, TAX RATES, TAX REBATES, TAX REDUCTION, TAX REGIME, TAX REGIMES, TAX REVENUE, TAX REVENUE SHARING, TAX REVENUES, TAX SPARING, TAX TREATMENT, TAX TREATY, TAXATION, TOTAL GOVERNMENT EXPENDITURE, TRANSACTION, TRANSACTION COSTS, TRANSITION COUNTRIES, TREATIES, TREATY, URBAN ECONOMICS, USE TAX, UTILITIES, VALUATION, WORLD TRADE,
Online Access:	http://www-wds.worldbank.org/external/default/main?menuPK=64187510&pagePK=64193027&piPK=64187937&theSitePK=523679&menuPK=64187510&searchMenuPK=64187283&siteName=WDS&entityID=000158349_20100517095203 https://hdl.handle.net/10986/3796
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