Tax incentives: how does a country optimise the value of tax incentives offered to foreign businesses?

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Insights from research at HEC Lausanne-UNIL - The challenge for host countries in a highly mobile global economy is persuading investing firms to remain once tax incentives are lowered or removed. Which businesses will then be mostly likely to stay? This is the question Prof. JosÚ Mata, HEC Lausanne, and his co-author, explored in their latest research project.

Let’s take the example of the United Kingdom. Given the country’s imminent departure from the EU, the issue of attracting foreign investors to British soil is clearly an important issue for political decision-makers. Incentives and/or tax exemptions could therefore represent a real lever for attracting businesses.

But what will happen when, after a certain period of time, these tax advantages are reduced or removed? Which type of firms will be most responsive and which will decide to move to another country to benefit from a fresh set of tax advantages?

It might be tempting to believe that firms that have little or no knowledge about the business environment of their host country would be those most likely to leave their home country. But Prof. JosÚ Mata and his co-author show that the opposite is true and their research identifies three factors that affect a business’s sensitivity to a reduction in tax advantages.

Are you curious to know more about their findings’ Find more details about their research in the article on our blog, HECimpact.

Get to know more about:

: JosÚ Mata is Full Professor and Head of Department of Strategy at HEC Lausanne, University of Lausanne. His interests center on the dynamics of markets and firms’ strategies and his research spans over the areas of entrepreneurship, strategy and international business.

  • Department of Strategy, Globalization and Society : this Department is conducting research on the sources of firms’ long-term competitive advantage and sustainable performance.