We characterise a model in which states engage in tax and policy competition with one another to attract mobile capital. The mix of policies chosen is shown to depend on the interaction between a desire to exploit capital for the benefit of domestic residents (labour) and a net marginal externality generated by capital. It is also argued that competition between states leads to an inefficient supply and geographical distribution of capital within the domestic economy if capital markets are not fully integrated. Copyright 2002 by The Economic Society of Australia.
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Article provided by The Economic Society of Australia in its journal The Economic Record.
Volume (Year): 78 (2002) Issue (Month): 241 (June) Pages: 175-85 Download reference. The following formats are available: HTML
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