Governments at the Bidding Table

While governments the world over have been debating with how much vigour to pursue foreign investment projects, the New Zealand government has recently indicated a reduced appetite for this activity. It has maintained, even strengthened, its commitment to subsidize screen production projects coming to the country, but money to attract investments in other industries has been diverted to an outward investment strategy. In sharp contrast, local governments have lately shown a much greater willingness to subsidize cultural or sporting events in order to boost local economic activity. I evaluate under what circumstances it makes sense for a government to subsidize private investments. I pay particular attention to interjurisdictional competition, showing what governments should expect to pay when they join a bidding war, and derive the expected welfare gain