Tax and Tariff Strategy under a Regional Trade Agreement in the Presence of FDI
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This paper shows that a regional trade agreement such as FTA or customs union can encourage competition, and may harm the member countries but raise world welfare. Ironically, host countries A and B, trying to attract FDI of a monopolist multinational company of country C, engage in a tax competition only when they have a cost advantage and only under RTA, and yet this works adversely to reduce their national welfare and benefit the MNC. This tax competition does not obtain in the Independent trade. For this result, we do not need any host country market imperfections such as unemployment.
Abstract
This paper shows that a regional trade agreement such as FTA or customs union can encourage competition, and may harm the member countries but raise world welfare. Ironically, host countries A and B, trying to attract FDI of a monopolist multinational company of country C, engage in a tax competition only when they have a cost advantage and only under RTA, and yet this works adversely to reduce their national welfare and benefit the MNC. This tax competition does not obtain in the Independent trade. For this result, we do not need any host country market imperfections such as unemployment.
참고문헌 (13)
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