Doyle, C. and van Wijnbergen, S. (1994). Taxation of foreign multinationals: a sequential bargaining approach to tax holidays International Tax and Public Finance, 1(3):211--225.
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Affiliated authorSweder van Wijnbergen
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Publication year1994
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JournalInternational Tax and Public Finance
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.