Fiscal federalism and competitive bidding for foreign investment as a multistage game
Date
2012-12
Journal Title
Journal ISSN
Volume Title
Publisher
National Council of Applied Economic Research (NCAER), New Delhi, IN
Abstract
This paper models the behavior of states in a federal country wising to attract foreign firms to
locate within their own individual jurisdictions. The essential intertemporal character of this
decision is modeled as a multi-stage game to attract such foreign investment in these states. It is
found that, when states with unequal political or economic infrastructure compete, the resulting
Nash equilibrium profiles are inefficient. Under certain conditions, states that have won once,
can “allow” a rival to win in a subsequent stage. The resulting Nash Equilibrium is more
efficient. If the option of “allowing” a rival to win is not available, then states may resort to
“suicide” strategies defined as outcomes created by history of losses.
Description
item.page.type
Working Paper
item.page.format
Text
Keywords
FISCAL FEDERALISM, MULTI-STAGE GAMES, SUICIDE STRATEGIES, COMPETITIVENESS, FOREIGN DIRECT INVESTMENT, TAX INCENTIVES, ECONOMIC INFRASTRUCTURE, ECONOMIC LIBERALIZATION, DECENTRALIZATION, GOVERNANCE, RURAL AREAS, INDIA