Using a two-country model with heterogeneous firms, we show that the optimal level and welfare gains of foreign direct investment (FDI) subsidies critically depend on how they are funded. In a setting that resembles common tax distortions in emerging markets, we compare the effects of...

Many emerging markets offer financial incentives to attract foreign direct investment, believing that such investment provides advanced technology or management skills. However, it appears developing economies such as China could benefit more from multinational corporations' financial resources

This paper studies the effect of FDI firms' financial advantages on firm productivity in host countries and examines the related policy implications. If FDI firms face lower financing costs but have higher fixed production costs than local firms, a simple Melitz-type model predicts that because...

The main features of China’s current sub-national finance arrangements date back to the 1994 tax reform. China has a multi-level government structure that shares national tax revenues through a system of tax sharing and transfers, and divides spending assignments and responsibilities. Local...