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Intra-regional Tax Competition and Economic Geography

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  • Ossip Hühnerbein
  • Tobias Seidel

Abstract

Abstract In this paper, we extend a solvable version of the core-periphery agglomeration model to four countries located in two regions to show that governments in the agglomerated region may not be able to levy a tax premium on mobile capital if there is intra-regional tax competition. This hypothesis challenges standard results in the literature and delegates clarification to empirical research. With respect to welfare, we find that intra-regional tax competition is detrimental from a welfare perspective and that tax harmonisation unambiguously makes both countries in the core region better off. Copyright 2010 Blackwell Publishing Ltd.

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Bibliographic Info

Article provided by Wiley Blackwell in its journal World Economy.

Volume (Year): 33 (2010)
Issue (Month): 8 (08)
Pages: 1042-1051

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Handle: RePEc:bla:worlde:v:33:y:2010:i:8:p:1042-1051

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  1. Baldwin, Richard E. & Krugman, Paul, 2004. "Agglomeration, integration and tax harmonisation," European Economic Review, Elsevier, vol. 48(1), pages 1-23, February.
  2. Hans Jarle Kind & Helene Midelfart & Guttorm Schjelderup, 2000. "Competing for Capital in a "Lumpy" World," CESifo Working Paper Series 252, CESifo Group Munich.
  3. Paul Krugman, 1990. "Increasing Returns and Economic Geography," NBER Working Papers 3275, National Bureau of Economic Research, Inc.
  4. Michael P. Devereux & Peter Birch Sørensen, 2006. "The Corporate Income Tax: international trends and options for fundamental reform," European Economy - Economic Papers 264, Directorate General Economic and Monetary Affairs (DG ECFIN), European Commission.
  5. Rodney D. Ludema & Ian Wooton, 1998. "Economic Geography and the Fiscal Effects of Regional Integration," International Trade 9801001, EconWPA.
  6. Peter Birch S�rensen, 2007. "Can Capital Income Taxes Survive? And Should They?," CESifo Economic Studies, CESifo, vol. 53(2), pages 172-228, June.
  7. Borck, Rainald & Pflüger, Michael P., 2004. "Agglomeration and Tax Competition," IZA Discussion Papers 1033, Institute for the Study of Labor (IZA).
  8. Michael P. Devereux & Rachel Griffith & Alexander Klemm, 2002. "Corporate income tax reforms and international tax competition," Economic Policy, CEPR & CES & MSH, vol. 17(35), pages 449-495, October.
  9. Forslid, Rikard, 1999. "Agglomeration with Human and Physical Capital: an Analytically Solvable Case," CEPR Discussion Papers 2102, C.E.P.R. Discussion Papers.
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Cited by:
  1. Kelemen, József, 2013. "Magyarország hét régiójának új gazdaságföldrajzi modellje - paraméterbecslés
    [The new economic-geography model of Hungarys seven regions - a parameter estimate]
    ," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(10), pages 1075-1089.

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