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By Kenneth P. Thomas (auth.)

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It appears clear that lumping these two types of FDI into aggregate data is misleading. 16 The type of tax data used also has a significant effect on the results in the studies analyzed. 5 points, while using either micro or macro average tax rates had no effect. Studies that controlled for tax exemption vs. 60 points (the opposite of that expected by the authors; 2005, p. 11 points lower, respectively (2005, p. 2). These results are rather bewildering for the making of policy. De Mooij and Ederveen find that only half of the estimated semi-elasticities were statistically significant, and the various results are heavily dependent on the methodology used (cross-sectional studies having hugely higher estimates).

Moreover, the US locations giving larger incentives are more prosperous than the highest subsidizing EU locations, which are largely in the former Communist states of Eastern Europe. The chapter then moves to an estimate of US state and local governments’ aggregate level of investment incentives and subsidies to business. Chapter 7, ‘The Spread of Investment Incentives to Developing Countries’, documents the more recent adoption of incentives in developing countries around the world. , 2005, p.

Another questionable assumption is that there will be productivity spillovers that justify the incentives. According to Havránek (2009, p. ’ Ironically, he nevertheless goes on to build his own model in which spillovers are a critical explanation for incentives! As noted above, the EU may be reasonably close to Barros and Cabral’s ‘first-best’ situation. As a whole, the results of these studies do argue for using regional policy rather than allowing uncoordinated bidding by rich areas as well as poor areas, but not necessarily for a total ban on incentives.

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