Targeted Transfers, Investment Spillovers, and the Tax Environment
We examine the informational role of targeted tax transfers used by local governments to attract corporate investment projects. The transfer may potentially be used to solve an information externality in which subsequent investments that follow the initial project may fail to occur even though they are profitable. The targeted transfer may be used to signal the profitability of such ancillary investments and thereby attract them. We show that this signaling role implies that an environment of either generally high corporate tax rates or low gains from secondary investments paradoxically yields an equilibrium in which the necessary government subsidy is lower.
In order to set up a list of libraries that you have access to,
you must first login
or sign up.
Then set up a personal list of libraries from your profile page by
clicking on your user name at the top right of any screen.