Multinationals, regulatory competition and outside options

Abstract

Lower barriers to entry and developments in world capital markets have increased the actual and potential mobility of multinational enterprises. This poses challenges for host countries’ tax and regulation policies. The paper examines implications for such policies, for multinationals’ investment decisions and for host countries’ welfare in cooperative and non-cooperative settings. An interesting finding is that more attractive outside options for firms may constitute a win-win situation; the firm as well as its present host countries may gain when this occurs. This means that better outside options for the firm may reduce the gains from host countries’ policy coordination and thus reduce those countries’ incentives to coordinate their policies.