Capital Mobility and Capital Tax Competition

Bidding for Firms with Unknown Characteristics

“…However, all of these studies focus on region-specific advantages. In this paper, we consider firm-specific productivity that is, at least in the 1 The tax sensitivity of firm location has been examined in a wide variety of studies that are surveyed by Devereux (2007), Zodrow (2010), and Feld and Heckemeyer (2011). 2 For evidence supporting our assumption that the location of a large firm can boost the productivity of local firms, see Kokko et al (1996), Sjöholm (1999), andJavorcik (2004).…”

“…to Tesla Motors ($20 million, 2010, California), Microsoft ($305 million, 2004-2010, and Amazon ($277 million, 2005($277 million, -2012. Quite often subsidy packages also combine different kinds of incentives; see, for example, subsidy packages given to Coca Cola Bottling Co. or to Daimler (2010.…”

Taxation of firms with unknown mobility

“…Baldwin and Okubo (2009),Davies and Eckel (2010),and Haufler and Stähler (2013) present models in which heterogeneous mobile firms sort themselves into high-tax and low-tax locations according to their profitability and cost structure. In contrast to these contributions, we consider homogeneous firms which only differ in mobility.3 There is substantial empirical evidence for the cross-border mobility of firms and its tax sensitivity; seeZodrow (2010) andFeld and Heckemeyer (2011) for recent surveys of the literature.4 Instead of homogenous migration cost for all mobile firms, we could equally consider a distribution of relocation cost across mobile firms. Learning would then be about one parameter (or, in more complicated settings, several parameters) of the underlying distribution function (e.g., the upper bound of a uniform distribution).…”