Interregional Competition for FDI: Theory and China's Case

摘要

This paper examines the efficacy of regional tax policies to attract FDI in a multi-region economy. We show that in theory, it is possible to have tax competition, tax cooperation or tax independence among regions. Using provincial data of China, our empirical evidence indicates that the policies of tax competition and cooperation are not effective in affecting regional FDI inflows; furthermore, regional economic development is nonetheless significant in explaining the largely skewed FDI pattern in China.