  This paper looks at a country's optimal central-government optimal policy in
a setting where its two identical local jurisdictions compete to attract
footloose multinationals to their sites, and where the considered
multinationals strictly prefer this country to the rest of the world. For the
sake of realism the model allows the local jurisdictions to choose between
firm-specific and non-firm-specific policies. We show that the implementation
of the jurisdictional firm-specific policy is weakly welfare dominant. Hence
the frequent calls for the central government to ban the former type of
policies go against the advice of this paper.
