Taxation, infrastructure and endogenous trade costs in new economic geography
AbstractThis paper presents a new economic geography model with distortionary taxation and endogenized trade costs. Tax revenues finance a public good, infrastructure. We show that the introduction of costly public investment in infrastructure increases agglomerative tendencies. With respect to the regions' sizes, in the periphery, the price index for manufacturing goods decreases, whereas for the core, the price index is rather high since the distortionary effect of taxes dominates. 'Free riding'- or, in terms of regional policy, externally funded infrastructure investment - is beneficial for the periphery, which can devote all its tax revenue to local demand support, generating a positive home market effect and driving the catch up process. Copyright (c) 2009 the author(s). Journal compilation (c) 2009 RSAI.
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Bibliographic InfoArticle provided by Wiley Blackwell in its journal Papers in Regional Science.
Volume (Year): 89 (2010)
Issue (Month): 1 (03)
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Web page: http://www.blackwellpublishing.com/journal.asp?ref=1056-8190
Other versions of this item:
- Gruber, Stefan & Marattin, Luigi, 2008. "Taxation, infrastructure, and endogenous trade costs in New Economic Geography," MPRA Paper 1068, University Library of Munich, Germany.
- S. Gruber & L. Marattin, 2009. "Taxation, Infrastructure, and Endogenous Trade Costs in New Economic Geography," Working Papers 668, Dipartimento Scienze Economiche, Universita' di Bologna.
- H54 - Public Economics - - National Government Expenditures and Related Policies - - - Infrastructures
- F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
- H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
- R12 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Size and Spatial Distributions of Regional Economic Activity; Interregional Trade (economic geography)
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