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Taxation of foreign multinationals: A sequential bargaining approach to tax holidays

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Abstract

Tax holidays for foreign multinational firms are tax concessions or straight subsidies granted for a limited period after entry. Such phenomena occur widely. We apply a sequential bargaining framework to a problem of ex post bilateral monopoly characterized by the presence of a host-country government and a foreign multinational firm. We show formally how a tax holiday can arise due to irreversible outlays and outside options.

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Doyle, C., Van Wijnbergen, S. Taxation of foreign multinationals: A sequential bargaining approach to tax holidays. Int Tax Public Finan 1, 211–225 (1994). https://doi.org/10.1007/BF00873838

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Key words

  • tax holidays
  • bargaining
  • sunk costs
  • multinationals