Question

1. Reflect on the tax breaks some states offer to foreign automakers in exchange for investments. What does the state gain from the investments? Does this practice give foreign companies an unfair advantage over domestic companies?

Answer 1

The major benefit which state gain from such investment is the employment opportunities which it creates. The state government has a major task of creating employment opportunities for the sizeable working population. Hence in order to ensure there are sufficient jobs in the market foreign automakers are offered to invest in the state. There are also other indirect benefits associated with this like economic development, more income levels, more spending by the people which will again lead to more growth in the economy.

The practice need not give foreign companies an unfair advantage over domestic companies. It will create competition in the particular segment and will ensure the companies are more cost conscious and focus on their strengths.