Politics and Foreign Direct Investment by Jensen Nathan;Biglaiser Glen;Li Quan;Malesky Edmund;Pinto Pablo;Pinto Santiago;Staats Joseph;

Author:Jensen, Nathan;Biglaiser, Glen;Li, Quan;Malesky, Edmund;Pinto, Pablo;Pinto, Santiago;Staats, Joseph;
Language: eng
Format: epub
Publisher: University of Michigan Press

The results from the second stage partially explain the implementation of a specific policy by a partisan government. In general, they suggest that if workers and owners of domestic capital are only concerned about their income, they will tend to favor antagonistic policies toward FDI. For instance, when foreign capital substitutes for labor in production (e.g., the type that introduces labor-saving technologies), a higher tax rate on foreign investment would increase wages but would reduce total income received by domestic capitalists. If labor and foreign capital are complements, labor will support lower taxes on foreign investment to lure that type of FDI. Domestic capitalists, however, may support higher or lower taxes. Note, however, that owners of labor and owners of capital will never unanimously support restrictive policies on foreign investment, in the form of higher taxes on internationally mobile capital.

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