The paper considers governments' public procurement decision as a way of influencing industry structure. In a federation in which capital is mobile and capital taxation is harmonized, a home bias in public procurement can potentially be explained as an effort to increase the capital intensity of local production and to attract taxable capital. As a result, governments may prefer domestic firms to more efficient foreign firms.
Weichenrieder, Alfons J. (1999), Public Procurement in the Presence of Capital Taxation, ZEW Discussion Paper No. 99-41, Mannheim. Download