Explaining deference

Why and when do policymakers think FDI needs tax incentives

Bibliographic Data

ID12315417
AuthorsSarah Bauerle Danzman (0000-0003-2278-4259, Indiana University, corresponding author), Alexander Slaski (0000-0001-9335-055X, Leiden University, corresponding author)
Year2021
Volume29
Issue4
Pages1085-1111
Publication date2021-03-01
Peer ReviewedYes
Open AccessNo
TypeARTICLE
VenueReview of International Political Economy (JOURNAL)
Journal identifiersISSN: 0969-2290 • E-ISSN: 1466-4526
PublisherRoutledge (PUBLISHER • GB)
DOI10.1080/09692290.2021.1885475
OpenAlexW3134816208
LanguageEN
Citations received3
References cited49

Why do governments compete for investment through tax incentives when there is strong evidence that such packages are inconsequential to the locational decisions of foreign firms? Previous scholarship has attributed pro-business policies such as investment incentives to factors including the structural power of business in an era of international capital mobility, fiscal competition generated through political decentralization or electoral pandering by political leaders. However, there is currently little understanding about how individuals, in their role as decision-makers within government agencies, form beliefs over how to best attract investment. Building on insights from the bureaucratic politics and behavioral economics literatures, we anticipate investment promotion professionals are more likely to view investment incentives as effective attraction tools when they have limited previous experience in the private sector, when they work for investment promotion agencies that are more integrated into the national bureaucracy, and when employee performance is evaluated based on deals closed. We test these expectations with a conjoint survey experiment of investment promotion professionals designed to uncover respondents’ beliefs over the relative importance of different components of the investment environment to firms’ locational decisions, and find substantial support for our expectations

Bureaucracy · Business · Competition (biology · Economic growth · Economics · Foreign direct investment · Incentive · Investment (military · Macroeconomics · Market economy · Microeconomics · Open-ended investment company · Political science · Politics · Production (economics · Promotion (chess · Public economics · Return on investment · Scholarship · Corporate Finance and Governance · Corporate Taxation and Avoidance · Taxation and Compliance Studies

Tools

Open DOI