The Impact of Multinationals’ Home-Returning Threats on the Fiscal Policies of Host Countries

Multinational firms use the threat of returning to their home country to gain lever-age over host governments, often securing excessive subsidies or tax reductions. This study examines how such “home-returning threats” influence host governments’ decisions to provide financial support, revealing that governments tend to offer unnecessary incentives to retain these firms. The research highlights that firms benefit more from continuing production abroad, using the threat as a negotiation tool to maximize profits, while host countries bear the cost of excessive subsidies.